2nd Nov 2007 17:33
Standard Life plc02 November 2007 Not for release, publication or distribution, in whole or in part, in or into any jurisdiction where to do so would constitute a violation of the relevant laws of that jurisdiction Date: 2 November 2007 STANDARD LIFE PLC ("STANDARD LIFE") OFFER FOR RESOLUTION PLC ("RESOLUTION") STATEMENT ON MERGER BENEFITS Further to the announcement made by Standard Life on 26 October 2007 inconnection with Resolution (the "Offer Announcement"), Standard Life confirmsall of the merger benefits referred to in the Offer Announcement and is givingfurther details of the sources and bases of preparation of these merger benefitsto enable Resolution shareholders to see and fully understand the value of itsoffer. Sandy Crombie, Chief Executive of Standard Life, commented: "Last Friday we announced an offer for Resolution which we believe would providecompelling value for both our shareholders and theirs. We believe these furtherdetails we are announcing today underline the attractions of our offer". Terms used but not defined in this announcement shall have the same meaningsgiven to them in the Offer Announcement. SECTION I SUMMARY OF COST AND FINANCIAL SYNERGIES As announced in the Offer Announcement, Standard Life has identified a number ofareas of synergies from the integration of the Resolution assets to be acquiredby Standard Life and retained by Standard Life (following the exercise ofoptions granted over certain Resolution assets to Swiss Re (the "Disposal")). The Board of Standard Life is targeting at least £71 million in annualisedpre-tax cost and financial synergies by the end of 2010 arising primarily fromthe following areas: • £35 million annual cost savings from the integration of Resolution's asset management function onto Standard Life's platform; • £18 million annual cost savings from de-duplication of group head office costs and rationalisation of UK Life & Pensions head office and support functions arising from the integration of the life operations to be retained by Standard Life following the Disposal; and • financial synergies of £18 million per annum reflecting the enhanced value of new business. 15% of the annualised cost and financial synergies are expected to be achievedin 2008, 75% in 2009 and 100% in 2010. The estimated pre-tax one-off costs ofachieving the cost synergies are expected to be approximately £82 million,comprising approximately £65 million in 2008 and approximately £17 million in2009. The Board of Standard Life considers that these savings have been conservativelyestimated and are confident that they will be delivered. An implementation planis in place. In addition to the benefits outlined above, the Board of Standard Life believesthat Standard Life would be able to realise financial benefits at leastequivalent to the anticipated £250 million benefit arising from the hithertoproposed merger of Resolution's Life Division North and Life Division South in2008, as announced by Resolution on 10 September 2007, through merging theacquired businesses into certain life funds in the Standard Life Group. SECTION II SOURCES AND BASES OF COST AND FINANCIAL SYNERGIES Background to the proposed cost and financial synergies Standard Life's head office will continue to be in Edinburgh and it intends tooperate certain group functions from London. Resolution's head office in Londonwill be retained as a corporate office of the Enlarged Group. It is expectedthat the Enlarged Group will be structured into a number of operationaldivisions. The UK Financial Services Business, which comprises Standard Life'slife and pensions, healthcare and banking divisions, will be extended to includeResolution's new business division and in-force business. Resolution's andStandard Life's asset management operations will be integrated and managed as asingle entity. As set out in the Offer Announcement, following the acquisition of Resolutionand the associated Disposal, Standard Life will retain the following Resolutionbusinesses and assets: • Resolution Asset Management. £50 billion of the assets under management out of the £57 billion managed by Resolution as at 30 June 2007 will be retained by Standard Life after the Disposal, including £24 billion under a 10 year investment management agreement with Swiss Re; • Almost all of Resolution's new business capability, and access to Abbey's nationwide network of branches. Standard Life will also retain Resolution's 65 strong Abbey broker consultant business; and - Life Division North, which includes: - Scottish Provident; - Scottish Mutual Assurance; - Phoenix Life Assurance; - Scottish Mutual International; and - Scottish Provident International. Please refer to the Offer Announcement for a fuller description of thearrangements in respect of the Disposal. Any synergies described in thisdocument refer only to synergies pertaining to Standard Life after the Disposal. The estimated synergies will be achieved through the following initiatives: Asset Management Cost savings in asset management are expected to be achieved through integrationof Resolution's asset management function onto Standard Life's asset managementplatform. Substantial overlap in investment capabilities, funds, products anddistribution channels exist which gives the opportunity to: • Amalgamate Resolution funds, to the extent practicable, with the equivalent Standard Life and Standard Life Investments funds; • Rationalise the resultant combined fund structures for optimal efficiency and flexibility; • Transition the remaining clients and portfolios onto the combined platform; and • Integrate the rest of Resolution Asset Management, including sales, marketing and investment functions within Standard Life's operations. The resultant combined operation will be well positioned for further growthopportunities. Head office and UK Life and Pensions Cost savings are expected to be achieved through creating a single groupmanagement structure and head office function, principally: • Creation of an Enlarged Group head office function, including: - Single Board and management team; and - De-duplication of certain group functions. • Rationalisation of UK Life & Pensions head office and other support functions, arising from the integration of the operations to be retained by Standard Life, including: - Combined finance and governance functions; and - Efficiencies in sales and marketing. Financial synergies Synergies have been identified which relate to the ability for Standard Life towrite Resolution's new business, post completion, in one of the life funds inthe Standard Life group which has excess taxable income thereby enabling fulland immediate tax relief to be obtained in respect of new business expenses. Basis of Preparation The estimate of total cost savings and financial synergies has been reported onunder the City Code on Takeovers and Mergers by PricewaterhouseCoopers LLP andby Standard Life's financial advisers, Merrill Lynch International and UBSLimited. Copies of a letter from PricewaterhouseCoopers LLP and a letter fromMerrill Lynch International and UBS Limited are set out in Appendix I. As set out above, any synergies described in this document refer only tosynergies pertaining to Standard Life after the Disposal. In order to derive theestimated cost savings, Standard Life has made certain assumptions regarding thesplit of the UK Life & Pensions and head office cost base between Resolution'sLife Division North and Life Division South. The assumptions in respect of theallocation of costs between Life Division North and Life Division South havebeen based upon high level cost information provided by Resolution. The estimates of cost savings achievable in asset management, head office and UKLife & Pensions have been derived from an analysis of Resolution's current andprojected cost base and headcount, based on business plans provided byResolution. Due to the complexity of Resolution's historical financial trackrecord, the projected cost base has been used for the purposes of estimatingcost savings as it reflects the forecast cost base, after taking account ofpreviously announced Resolution synergies, for the current Resolution groupstructure. In determining the cost savings, Standard Life's management haveidentified areas of overlap between Standard Life and Resolution's existingfunctions. The above cost synergies have been determined after allowing for the fullimplementation of Standard Life's and Resolution's previously announced costsavings programmes: • At the time of its IPO, Standard Life announced a Life & Pensions expense reduction of £30 million and corporate cost reduction of £16 million per annum by 2007; • Standard Life also announced £100 million of underlying annual cost savings in its preliminary results announcement of 22 March 2007; and • Resolution announced £17 million of pre-tax annual synergies at the time of its acquisition of the former Abbey life companies, which completed in August 2006. These synergies also exclude the £20 million of expected pre-tax annual costsavings relating to Resolution's merger with Britannic, which completed inSeptember 2005 and which relate to the businesses to be acquired by Swiss Re. Asset management Asset management synergies have been calculated by reference to the 2007forecast cost base of Resolution Asset Management, which was compared to actualcosts in the first six months of 2007. The level of synergies has been assessedassuming that all of the assets under management of Resolution, except forcertain assets to be sold to Swiss Re, are transitioned to Standard Life'sinvestment management platform. Head office and UK Life & Pensions In order to derive the estimated cost savings in head office and UK Life andPensions, Standard Life has analysed the projected 2009 cost base ofResolution's Life and Pensions business, which has also been compared to theactual reported cost base for the full year ended 31 December 2006 and the halfyear ended 30 June 2007. Standard Life's management considers the 2009 projectedcost base of Resolution as the most appropriate basis for assessing savings fromthe combination, since it is lower than the 2007 projected cost base due to itsallowance in full for cost savings that Resolution expects to achieve fromprevious acquisitions and initiatives. The estimate of de-duplication cost savings derives from savings identified andrealisable within Resolution's cost base, though Standard Life's managementexpects, in practice, to realise these savings across the Enlarged Group. Financial synergies The financial synergies in respect of the enhanced value of new business havebeen calculated on the basis that excess taxable income exists in Standard Lifesuch that expenses in respect of Resolution new business written in StandardLife companies, rather than Resolution, which would otherwise not be availablefor relief from tax, will become relievable. Standard Life's assessment of thefinancial synergies has been based upon information provided by Resolution anddiscussions with Resolution management. Costs of achieving synergies Estimated costs of achieving the cost synergies have been prepared based uponinformation provided by Resolution and on analysis prepared by Standard Life.Estimated costs include the costs of rationalising functions as well as costs ofinvestment in systems and processes to achieve merged functions across theEnlarged Group. Additional financial synergies of £250 million Standard Life's management have made an assessment that, in their belief,Standard Life would be able to achieve financial benefits at least equivalent tothe anticipated one-off uplift in EEV of £250 million previously announced byResolution in respect of the proposed merger of Resolution's Life Division Northand Life Division South. The expectation of the ability to achieve benefitsthrough merging the acquired Life Division North business into certain funds inthe Standard Life Group and the ability to achieve other financial benefitsarising from the acquisition and integration of Resolution companies into theStandard Life Group has been based on information provided by Resolution inrespect of the components of the anticipated £250 million benefit and comparisonof the attributes of the Life Division North and Life Division South entities(which attributes underlie the anticipated £250 million benefit previouslyannounced by Resolution) with those of Standard Life's own funds as well asanalysis of other financial benefits based upon information provided byResolution. The key assumptions on which this statement has been based are that: • FSA and Court approvals are obtained for the transfer of the life insurance funds of Scottish Mutual Assurance Limited, Scottish Provident Limited and Phoenix Life Assurance Limited to a Standard Life entity under Part VII of the Financial Services and Markets Act 2000; • The Part VII transfer occurs by 31 December 2008; • The standard rate of corporation tax is 28%; and • That the ability to achieve financial synergies is not impaired by the taxation changes announced in the pre Budget report on 9 October 2007 (see note 2 below). Notes 1. The estimated cost savings in this announcement should not be interpreted as meaning that the earnings per share of the Enlarged Group for the current or future financial years will necessarily match or exceed the historical published earnings per share of Resolution. Nothing in this announcement should be interpreted to mean that Standard Life's future EEV operating earnings per share will necessarily match or exceed the historical EEV operating earnings per share of Standard Life. 2. Taxation changes announced in the Pre Budget Report on 9 October 2007 affect the manner in which life insurance companies can treat expenses relating to reinsurance, with the effect that, from 9 October 2007, insurers are unable to obtain tax relief on expenses where they have not borne the economic cost of those expenses. These changes could affect the ability to achieve the proposed financial synergies from a merger between Standard Life and Resolution. Standard Life's management are satisfied that the business can be restructured to maintain tax relief for expenses at the level assumed in the proposed financial synergy. 3. Resolution entered into an outsourcing agreement with Capita in May 2007, from which Resolution management expected to deliver an average of £20 million pre-tax cost benefits from 2010. It has been assumed that this contract will remain in place following the Completion of the Transactions in respect of the Life Division South business and the Life Division North operations being retained by Standard Life. The cost savings in UK Life & Pensions assume that the financial terms of the contract with Capita continue in respect of the operations being retained by Standard Life. As such, the estimated cost savings do not allow for any adverse impact resulting from any changes to the contract that may result from the change of control of Resolution and a potential separation of the contract. 4. Standard Life's estimate of cost and financial synergies does not include the expected increase in value of new business arising from the acquisition of Abbey's broker consultant business, as announced by Resolution on 10 September 2007 and completed on 28 September 2007. 5. Standard Life's estimate of annual financial synergies is independent of the £250 million benefit arising from the hitherto proposed merger of Resolution's Life Division North and Life Division South in 2008 as announced by Resolution on 10 September 2007. 6. The Board of Standard Life has not had detailed discussions with Resolution's management regarding the reasonableness of their assumptions supporting the estimate of cost savings. Therefore there remain inherent risks in this forward-looking estimate, including the risk that actual costs differ materially from those forecast by Resolution management, as used by Standard Life in the preparation of its synergy assessment. 7. Due to the scale of the combined Standard Life and Resolution organisation, there may be additional changes to the Enlarged Group's operations. In addition, there are several material assumptions underpinning the estimates, including the allocation of Resolution costs between Life Division North and Life Division South and the level of costs necessary to operate each combined function or activity. Because of these factors and the fact that the changes relate to the future, the resulting cost savings may be materially greater or less than those estimated. 8. In arriving at the estimate of cost and financial synergies set out in this announcement, the Directors of Standard Life have assumed that there will be no significant impact on the business of the Enlarged Group arising from any decisions made by competition authorities and regulatory bodies. Dealing disclosure requirements Under the provisions of Rule 8.3 of the City Code, if any person is, or becomes,"interested" (directly or indirectly) in 1 per cent. or more of any class of"relevant securities" of Standard Life or Resolution, all "dealings" in any"relevant securities" of that company (including by means of an option inrespect of, or a derivative referenced to, any such "relevant securities") mustbe publicly disclosed by no later than 3.30 p.m. (London time) on the Londonbusiness day following the date of the relevant transaction. This requirementwill continue until the Scheme becomes Effective, lapses or is otherwisewithdrawn or on which the "offer period" otherwise ends (or if the Acquisitionis implemented by way of an offer, until the date on which such offer becomes,or is declared, unconditional as to acceptances, lapses or is otherwisewithdrawn or on which the "offer period" otherwise ends). If two or more personsact together pursuant to an agreement or understanding, whether formal orinformal, to acquire an "interest" in "relevant securities" of Standard Life orResolution, they will be deemed to be a single person for the purpose of Rule8.3. Under the provisions of Rule 8.1 of the City Code, all "dealings" in "relevantsecurities" of Resolution or Standard Life by Standard Life or Resolution, or byany of their respective "associates", must be disclosed by no later than 12.00noon (London time) on the London business day following the date of the relevanttransaction. A disclosure table, giving details of the companies in whose "relevantsecurities" "dealings" should be disclosed, and the number of such securities inissue, can be found on the Panel's website at www.thetakeoverpanel.org.uk. "Interests in securities" arise, in summary, when a person has long economicexposure, whether conditional or absolute, to changes in the price ofsecurities. In particular, a person will be treated as having an "interest" byvirtue of the ownership or control of securities, or by virtue of any option inrespect of, or derivative referenced to, securities. Terms in quotation marks are defined in the City Code, which can also be foundon the Panel's website. If you are in any doubt as to whether or not you arerequired to disclose a "dealing" under Rule 8, you should consult the Panel. Forward looking statements This announcement may contain forwardlooking statements that are based oncurrent expectations or beliefs, as well as assumptions about future events.Generally, the words "will", "may", "should", "continue", "believes", "expects","intends", "anticipates" or similar expressions identify forward-lookingstatements. These statements are based on the current expectations of managementand are naturally subject to risks, uncertainties and changes in circumstances.Undue reliance should not be placed on any such statements because, by theirvery nature, they are subject to known and unknown risks and uncertainties andcan be affected by other factors that could cause actual results, andmanagement's plans and objectives, to differ materially from those expressed orimplied in the forward looking statements. There are several factors which could cause actual results to differ materiallyfrom those expressed or implied in forward looking statements. Among the factorsthat could cause actual results to differ materially from those described in theforward looking statements are the ability to combine successfully thebusinesses of Standard Life and Resolution and to realise expected synergiesfrom that combination, changes in the global, political, economic, business,competitive, market and regulatory forces, future exchange and interest rates,changes in tax rates and future business combinations or dispositions. Standard Life does not undertake any obligation (except as required by theListing Rules, the Disclosure and Transparency Rules and the rules of the LondonStock Exchange) to revise or update any forward looking statement contained inthis announcement, regardless of whether that statement is affected as a resultof new information, future events or otherwise. Overseas jurisdictions The release, publication or distribution of this announcement in jurisdictionsother than the United Kingdom may be restricted by law and, therefore, anypersons who are subject to the laws of any jurisdiction other than the UnitedKingdom should inform themselves about, and observe, any applicablerequirements. This announcement has been prepared for the purposes of complyingwith English law, the City Code and the Listing Rules and the informationdisclosed may not be the same as that which would have been disclosed if thisannouncement had been prepared in accordance with the laws and regulations ofany jurisdiction outside of England. This announcement is not intended to, and does not constitute, or form part of,an offer to sell, purchase, exchange or subscribe for or a solicitation of anoffer to sell, purchase or exchange any securities or a solicitation of any voteor approval in any jurisdiction. This announcement does not constitute aprospectus or a prospectus equivalent document. APPENDIX I The Directors PricewaterhouseCoopers LLPStandard Life plc 1 Embankment PlaceStandard Life House London WC2N 6RH30 Lothian Road Edinburgh EH1 2DH Merrill Lynch InternationalMerrill Lynch Financial Centre2 King Edward StreetLondonEC1A 1HQ UBS Limited1 Finsbury AvenueLondonEC2M 2PP 2 November 2007 Dear Sirs Standard Life plc offer for Resolution plc We refer to the statement regarding the estimated cost and financial synergies(the "Statement") made by the directors of Standard Life plc (the "Directors")set out in Section I of the announcement issued on 2 November 2007 in connectionwith the offer for Resolution plc and associated disposal of certain Resolutionassets to Swiss Reinsurance Company (the "Transactions"). The Statement has been made in the context of the disclosures in Section II ofthe announcement setting out, inter alia, the Directors' bases of belief(including sources of information) supporting the Statement and their analysisand explanation of the underlying constituent elements. This report is required by Note 8 on Rule 19.1 of the City Code on Takeovers andMergers (the "City Code") and is given for the purpose of complying with thatrequirement and for no other purpose. Responsibility The Statement is the responsibility of the Directors. It is our responsibilityand that of Merrill Lynch International and UBS Limited (together, the"Financial Advisers") to form our respective opinions, as required by Note 8(b)on Rule 19.1 of the City Code, as to whether the Statement has been made by theDirectors with due care and consideration. Save for any responsibility which we may have to those persons to whom thisreport is expressly addressed, to the fullest extent permitted by law, we do notassume any responsibility, and will not accept any liability, to any otherperson for any loss suffered by any such person as a result of, arising out of,or in connection with this report. Basis of opinion We conducted our work in accordance with the Standard for Investment Reporting1000 (Investment Reporting Standards applicable to all engagements in connectionwith an investment circular) issued by the Auditing Practices Board. We have discussed the Statement together with the relevant bases of belief(including sources of information) with the Directors and the FinancialAdvisers. We have also considered the letter dated 2 November 2007 from theFinancial Advisers to the Directors on the Statement. Our work did not involveany independent examination of any of the financial or other informationunderlying the Statement. We do not express an opinion as to the achievability of the cost and financialsynergies as set out in the Statement. The Statement is subject to uncertaintyas described in Section II of the announcement. Because of the significantchanges in the enlarged group's operations expected to flow from theTransactions and because the Statement relates to the future, the actual costsavings and financial synergies achieved are likely to be different from thoseanticipated in the Statement and the differences may be material. Our work has not been carried out in accordance with auditing standardsgenerally accepted in the United States of America or auditing standards of thePublic Company Accounting Oversight Board (United States) and accordingly shouldnot be relied upon as if it had been carried out in accordance with thosestandards. Opinion In our opinion the Directors have made the Statement, in the form and context inwhich it is made, with due care and consideration. Yours faithfully PricewaterhouseCoopers LLPChartered Accountants Merrill Lynch International UBS LimitedMerrill Lynch Financial Centre 1 Finsbury Avenue2 King Edward Street LondonLondon EC2M 2PPEC1A 1HQ 2 November 2007 The DirectorsStandard Life plcStandard Life House30 Lothian RoadEdinburghEH1 2DH Dear Sirs Standard Life plc offer for Resolution plc Merrill Lynch International and UBS Limited (together, "we") refer to thestatement regarding the estimated cost and financial synergies made by thedirectors of Standard Life plc (the "Statement") set out in the announcementissued on 2 November 2007 in connection with the offer for Resolution plc andassociated disposal of certain Resolution assets to Swiss Reinsurance Company(the "Transactions"), announced on 26 October 2007, and the bases of preparationthereof and the notes thereto, for which the Directors of Standard Life plc aresolely responsible. We have discussed the Statement, including the relevant bases of belief(including the assumptions and sources of information summarised in Section IIof the Statement), with the Directors of Standard Life plc and those officersand employees of Standard Life plc and its subsidiaries who developed theestimated cost savings and financial synergies. We have relied upon the financial and other information reviewed by us beingaccurate and complete (in each case in all material respects) and have assumedsuch accuracy and completeness for the purposes of this letter. In giving theconfirmation set out in this letter, we have reviewed the work carried out byPricewaterhouseCoopers LLP and have discussed with them the conclusions statedin their letter dated 2 November 2007. We do not express any opinion as to the achievability of the cost savings andfinancial synergies as estimated by Standard Life plc. The Statement is subjectto uncertainty as described in Section II of the Statement and our work did notinvolve any independent examination of any of the financial or other informationunderlying the Statement. Because of the significant changes in the enlargedgroup's operations expected to flow from the Transactions and because theStatement relates to the future, the actual cost savings and financial synergiesachieved are likely to be different from those anticipated in the Statement andthe differences may be material. On the bases of the foregoing, each of us considers that the Statement has beenmade with due care and consideration in the form and context in which it ismade. This letter is provided pursuant to our respective engagement letters withStandard Life plc solely to the Directors of Standard Life plc for the purposesof reporting to Standard Life plc under Note 8(b) to Rule 19.1 of the City Codeon Takeovers and Mergers and for no other purpose. We accept no responsibilityto Resolution plc or to its or Standard Life plc's shareholders or any otherperson, other than the Directors of Standard Life plc, in respect of thecontents of, or any matter arising out of or in connection with, this letter. Yours faithfully, For Merrill Lynch International For UBS Limited Henrietta Baldock Ian Gladman Managing Director Managing Director Tim Waddell Managing Director This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
SLA.L