Standard Life Plc · LSE:SDLF
Standard Life — Pearl Group — SPAC Merger (July 2009)
41 slides from Standard Life's SPAC merger presentation, July 2009
Slide 1: Shareholder Presentation
Shareholder Presentation July 2009 0
Slide 2: Disclaimer
Disclaimer Liberty Acquisition Holdings (International) Company (“Liberty”) has posted on its website a proxy statement and consent solicitation statement (the “Proxy and Consent Solicitation Statement”) in connection with an extraordinary general meeting of Liberty’s shareholders to be held on July
Slide 3: Contents
Contents • Overview of Liberty transaction • Review of Pearl’s Business • Summary Appendices • A Further Information on Pearl • B Financial Information • C The Liberty transaction 2
Slide 4: Introduction to the presentation team
Introduction to the presentation team Pearl Liberty Acquisition Holdings (International) Hugh Osmond (Vice Chairman) Martin Franklin • Founder and Executive Director of Pearl Group, and led the • Chairman and Chief Executive Officer, Jarden Corporation £1.1bn acquisition of life assurance assets of
Slide 5: 1. Overview of Liberty Transaction
1. Overview of Liberty Transaction
Slide 6: Liberty acquisition of Pearl: Highlights
Liberty acquisition of Pearl: Highlights • Liberty believes that Pearl represents a unique opportunity to take advantage of market events and acquire an established business at a distressed valuation • Injection of up to €603m (£514m) of new funds by Liberty enables restructuring of liabilities (deb
Slide 7: Pearl recapitalisation
Pearl recapitalisation • Liberty has undertaken extensive due diligence and fully understands the reasons for Pearl’s recent financial stress: – Acquisition of Resolution plc (in May 08) was highly leveraged and utilised the substantial surplus shareholder funds built up within Pearl over previous t
Slide 8: Overview of Liberty transaction
Overview of Liberty transaction • Liberty acquiring 100% of Pearl for shares • At €10 per Liberty share, Pearl is valued at £1,126m(1), representing 50% of proforma net EV of £2,266m • Liberty injects cash of up to €603m (£514m) to increase financial strength and flexibility • Other restructuring re
Slide 9: Closed life companies have demonstrated attractive returns and low sensitivity to market movements
Closed life companies have demonstrated attractive returns and low sensitivity to market movements Higher returns than “open” life companies and the FTSE 100 Beta comparison 1.0 1.866 300 1.682 “Open” life 1.672 (b) insurance (c) 250 +150% companies 1.413 (a) +131% 1.130 +125% 1.076 200 Open Life Bu
Slide 10: Pearl: UK's leading consolidator of closed life funds
Pearl: UK’s leading consolidator of closed life funds • Proforma gross EV at completion of £5.2bn(1) (before bank debt and other liabilities) Large existing • c.7.6m policies in force operating platform • Total AuM of c.£71bn • c.£1.1bn of cash distributed from life companies in 2008 • Cashflows gre
Slide 11: Significant value was created from the original Pearl acquisition
Significant value was created from the original Pearl acquisition Pearl Group Limited: Evolution of EV • Expected return & £670m experience variations • Assumption changes £243m £1.6bn £1.07bn £1.3bn Purchase Discount EV @ Jun Strategic Release ALM Fund Asset Debt Proforma price in to EV 04 and outs
Slide 12: 2. Review of Pearl's Business
2. Review of Pearl’s Business
Slide 13: Structure and business overview
Structure and business overview Pearl Group Limited • EV of £5.2bn(1) • c.£71bn AuM • c.1,500 employees Asset Life Service Outsourcing Management Companies Companies agreements • Two businesses (Ignis and • Two principal Life-Cos: • Two service companies (PGS • Outsourcing agreements Axial) – Pearl
Slide 14: Business strategy
Business strategy • Scale platform • Use of outsourcing • Accelerate cash flows • No new business strain • Industry-leading asset and liability management team • Cautious risk management led to unwinding of legacy ABS and CDO positions prior to August 2007 • Favourable market conditions • Few credib
Slide 15: Financial management: Significant further value to be realised from previous transactions
Financial management: Significant further value to be realised from previous transactions Hypothetical Capital Requirements in a Fund Merger(1) Reduction in requirement: £100m (20%) • Eliminate unrewarded risk and release capital to enable Capital Capital Capital higher risk-adjusted returns require
Slide 16: Service companies: Driving operational excellence
Service companies: Driving operational excellence Site Consolidation • Delivered Resolution merger cost savings of £10m p.a. Glasgow • Overall decline of policy book over time addressed by matching the incurred cost to the group’s policy run-off Wythall profile Peterborough • Closure of 2 of 3 opera
Slide 17: Select financial metrics
Select financial metrics Proforma net Embedded Value Capital Pearl Group Limited gross EV at 31 Dec 2008 4,749 IGD solvency surplus(4) £1,048m IGD CRR coverage(4) 1.3x Original bank facilities (3,085) PIK note(1) (332) Dividend policy Net EV at 31 December 2008 1,332 Anticipated dividend (2009) €0.5
Slide 18: Strong and resilient business
Strong and resilient business Low Sensitivity of EV High Quality Asset Portfolio(1) Property Change in EV Other investments (2) investments 3.4% Debt securities (£m) (%) 4.9% - gilts 24.6% EV at 31 December 2008 4,749 Cash deposits 13.9% 100bp increase in risk-free rates (50) (1)% 100bp decrease in
Slide 19: EV and cashflow enhancement in existing business
EV and cashflow enhancement in existing business • The injection of substantial new equity funds will allow management to pursue identified value creation initiatives which should increase embedded value and accelerate cashflows • Many of these initiatives are underway and management believes that a
Slide 20: Illustrative sources of value creation through acquisition
Illustrative sources of value creation through acquisition IRR build-up on hypothetical acquisition • Based on hypothetical Effect of 50% forecast EV cashflows over acquisition leverage 30 years • In-force IRR benefits from – Discount to EV Unlevered IRR inc. synergies – Run-off profile • Tax shield
Slide 21: Future opportunities from consolidation strategy
Future opportunities from consolidation strategy P/EV of closed fund deals • Owners of legacy / closed life funds remain open to disposals, in order to free up capital, enhance returns Date(1) Acquirer Target and reduce demands on management Sw iss Aug 2008 Swiss Re Barclays Life 0.90x Re/Barclays •
Slide 22: 3. Summary
3. Summary
Slide 23: Conclusion
Conclusion • Opportunity to buy into strong and resilient long-term cashflows at a substantial discount to embedded value – Cashflows greater than profits as regulatory capital is released with run-off – No costs or risks associated with writing capital-intensive new business • Clear plans to delive
Slide 24: Appendix A – Further Information on Pearl
Appendix A – Further Information on Pearl 23
Slide 25: Pearl Group: Pure closed fund focus
Pearl Group: Pure closed fund focus • A collection of largely long-dated liabilities comprising maturing life policies which entitle policyholders to defined future payments of a steady and generally predictable nature What is a • To meet long-dated liabilities, life companies hold substantial asset
Slide 26: Life companies and asset management
Life companies and asset management UK’s Leading Closed Life Fund Consolidator Asset Management: Traditional and Specialist Expertise • Large and stable base of captive AuM from life companies Assurance • Opportunities to realise additional value through consolidation • Ignis: AuM of £48bn – Traditi
Slide 27: Description of cash flows from a closed life fund group
Description of cash flows from a closed life fund group Shareholders Dividends Interest Loans Closed Life Fund Group • Interest income • Expenses • Tax relief “Operating” cashflows Life Service Asset mgmt companies companies companies • Release of solvency buffers • Operating profits derived from se
Slide 28: Closed life fund group consolidation model
Closed life fund group consolidation model Closed life fund Consolidation of closed life funds • Over time, policies mature and the VIF runs off as cashflows • VIF and hence cashflows to be replenished through future • In addition, the capital required to support the solvency of the acquisitions bus
Slide 29: Closed funds have traded on more stable P/EV multiples than open life insurers
Closed funds have traded on more stable P/EV multiples than “open” life insurers Embedded value multiples • Stability and low volatility relative to “open” life Low share insurers price sensitivity • Closed fund stocks have displayed lower betas than 1.4x the “open” life insurance companies • “Open”
Slide 30: Governance
Governance At completion of transaction Planned changes Chairman Size of board will be increased to 15 members Ian Ashken Prior to completion, Liberty will conduct a process to Ian Cormack appoint a permanent chairman David Barnes In the event that a permanent chairman is not PLC Ren
Slide 31: Appendix B – Financial Information
Appendix B – Financial Information 30
Slide 32: Trading update
Trading update • Since year end 2008, financial markets have remained volatile across a wide range of asset classes – From December 31, 2008 to June 30, 2009, the FTSE All Share Index decreased by 1.7% and the spreads for European AA corporate bonds narrowed by 56 basis points – The IPD UK All prope
Slide 33: Embedded Value assumptions
Embedded Value assumptions • Market-consistent methodology – Assets and liabilities valued in line with market prices and consistently with each other • Under certainty equivalent approach, all gross investment returns assumed to be equal to the risk-free rate – As of 31 December 2008, risk-free rat
Slide 34: The Resolution acquisition
The Resolution acquisition £5.2bn £(1.3)bn £(1.0)bn £0.6bn £3.5bn £2.9bn Gross consideration Royal London Cash used to Net consideration Net purchase Impala EV for Resolution (1) consideration (2) repay bridge for Resolution discount to @ Dec 2008 financing year end EV: 17% (1) £5.2bn gross consider
Slide 35: Life fund solvency and IGD capital
Life fund solvency and IGD capital Life Fund Solvency (31 Dec 08)(1) IGD Solvency Surplus (31 Dec 08)(2) Proforma for equity injection following Liberty transaction Phoenix (£m) & London Pearl London Phoenix Scottish Scottish Life NPI Assurance Assurance Life Mutual Provident 1.3x CRR (£m) Ltd Ltd P
Slide 36: Asset mix of life companies
Asset mix of life companies Policyholder funds(1) Shareholder funds(2) Participating(3) Unit-linked Total Debt securities-gilts £2,860m 24% £12,106m £1,095m £16,061m Debt securities-bonds £4,301m 36% £15,713m £714m £20,728m Equity securities £252m 2% £6,738m £6,993m £13,983m Property investments £74
Slide 37: Appendix C – The Liberty transaction
Appendix C – The Liberty transaction 36
Slide 38: Transaction structure and ownership
Transaction structure and ownership EV & No. of Shares • Liberty issues 53.3m new shares to Pearl’s existing shareholders (incl. management), Outstanding shares & warrants (m) lenders and Royal London Shares issued to Pearl’s lenders 7.7 Shares issued to Royal London 6.2 (1) • Existing Liberty share
Slide 39: Amended and restated credit facilities
Amended and restated credit facilities Currently Outstanding Amended and restated £m Margin Maturity £m Margin(1) Maturity Repayment £25m p.a. 2011-2015 Existing Bank Debt 825 L+125bps 2013 425(2) L+125bps cash 2016 Balance in 2016 Lender Loan Notes - - - 75 L+100bps cash or PIK 2024 Non-amortising
Slide 40: Summary schedule of dilutive instruments
Summary schedule of dilutive instruments • 41.5m warrants convertible into 41.5m shares; exercise price of €11.0 per share Liberty warrants • At exercise, additional €456m will be added to net total EV (41.5m shares) • Liberty has option to redeem warrants if share price is at or above €16.5 for any
Slide 41: Effect of dilutive instruments
Effect of dilutive instruments • There is no dilution from Earn-out Shares or Lender Warrants until share price is 30%, 40%, 50% and 76.1% higher than it is today (€10). Shareholders will get a substantial return before any dilution • Liberty and Royal London warrant dilution may occur when share pr