THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the action you should take, you are recommended to seek your own financial advice immediately from your stockbroker, bank manager, solicitor, accountant or other independent financial adviser duly authorised under the Financial Services and Markets Act 2000, if you are in the United Kingdom, or from another appropriately authorised independent financial adviser. If you sell or transfer or have sold or otherwise transferred all of your Shares, please forward this document and the accompanying documents as soon as possible to the purchaser or transferee or to the bank, stockbroker or other agent through or to whom the sale or transfer was effected, for onward transmission to the purchaser or transferee. If you receive this Circular from another Shareholder, as a purchaser or transferee, please contact the Registrar for a Voting Form. Any person (including, without limitation, custodians, nominees and trustees) who may have a contractual or legal obligation or may otherwise intend to forward this document to any jurisdiction outside the United Kingdom should seek appropriate advice before taking any action. The distribution of this Circular and any accompanying documents into jurisdictions other than the United Kingdom may be restricted by law. Any person not in the United Kingdom into whose possession this Circular and any accompanying documents come should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. Standard Life plc (Incorporated and registered in Scotland with registered number SC286832) Proposed disposal of Standard Life s Canadian business and Notice of General Meeting A notice convening a General Meeting of Standard Life to be held at 2pm on 3 October 2014 at 155 Bishopsgate, London EC2 is set out at the end of this document. Where you have received this document from Standard Life in hard copy, a Voting Form for use at the General Meeting is enclosed. Otherwise, a Voting Form will either have been sent to you in hard copy or is available electronically through www.standardlifeshareportal.com. Whether or not you intend to attend the General Meeting in person, please complete, sign and return the Voting Form in accordance with the instructions printed on it as soon as possible but, in any event, so as to be received by the Registrar no later than 6pm on 1 October 2014. Alternatively, a Voting Form can be completed electronically through www.standardlifeshareportal.com. If you hold your Shares in uncertificated form (i.e. in CREST) you may appoint a proxy by completing and transmitting a CREST Proxy Instruction in accordance with the procedures set out in the CREST Manual so that it is received by the Registrar (under CREST participant ID RA10) by no later than 6pm on 1 October 2014. The time of receipt will be taken to be the time from which the Registrar is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST.
Completion and submission of the Voting Form or completing and transmitting a CREST Proxy Instruction will not prevent Shareholders from attending and voting in person at the General Meeting if they wish to do so. Members of the Standard Life Share Account who wish to attend and vote in person at the General Meeting must complete, sign and return the Voting Form with their own name in the nominated proxy box. This document is a circular relating to the Disposal which has been prepared in accordance with the Listing Rules and approved by the Financial Conduct Authority. For a discussion of the risks relating to the Disposal, see the discussion of risks and uncertainties set out in Part II (Risk Factors) of this document. This document should be read as a whole. Your attention is drawn to the letter from Sir Gerry Grimstone, the Chairman of Standard Life, which is set out in Part I (Letter from the Chairman of Standard Life) of this document in which the Board of Standard Life unanimously recommends that you vote in favour of the resolution to be proposed at the General Meeting referred to below. No person has been authorised to give any information or make any representations other than those contained in this document and, if given or made, such information or representations must not be relied on as having been so authorised. The delivery of this document shall not, under any circumstances, create any implication that there has been no change in the affairs of Standard Life since the date of this document or that the information in it is correct as of any subsequent time. J.P. Morgan Limited (which conducts its UK investment banking activities as J.P. Morgan Cazenove), which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting exclusively for Standard Life and for no one else in connection with the Disposal and will not regard any other person (whether or not a recipient of this document) as a client in relation to the Disposal and will not be responsible to anyone other than Standard Life for providing the protections afforded to clients of J.P. Morgan Cazenove or for affording advice in relation to the Disposal, the contents of this document or any transaction, arrangement or other matter referred to in this document. This document contains certain forward-looking statements relating to the Group, the Retained Group, the Target Group and the Disposal, including with respect to certain of Standard Life s plans and its current goals and expectations relating to its future financial condition, performance, results, strategy and objectives. Statements containing the words believes, intends, should, expects, plans, pursues, seeks and anticipates (or negatives thereof), and variations thereof or words of similar meaning, are forwardlooking. By their nature, all forward-looking statements involve assumptions, risk and uncertainty because they relate to future events and circumstances which are beyond Standard Life s control including, among other things, United Kingdom domestic and global economic and business conditions, market-related risks such as fluctuations in interest rates and exchange rates, and the performance of financial markets generally; the policies and actions of regulatory authorities, the impact of competition, inflation and deflation; experience in particular with regard to mortality and morbidity trends, lapse rates and policy renewal rates; the timing, impact and other uncertainties of future acquisitions or combinations within relevant industries; and the impact of changes in capital, solvency or accounting standards, and tax and other legislation and regulations in the jurisdictions in which Standard Life and its affiliates operate. As a result, Standard Life s actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in the forward-looking statements and no assurances can be given that the forwardlooking statements in this document will be realised. No representation or warranty is made as to the achievement or reasonableness of such forward-looking statements. Any forward-looking statements made herein speak only as of the date they are made. Except as required by the Financial Conduct Authority, the London Stock Exchange or applicable law, Standard Life expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this document to reflect any change in Standard Life s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Capitalised terms have the meaning ascribed to them in Part VII (Definitions) of this document. 2
CONTENTS EXPECTED TIMETABLE OF PRINCIPAL EVENTS 4 PART I LETTER FROM THE CHAIRMAN OF STANDARD LIFE 5 PART II RISK FACTORS 16 PART III PRINCIPAL TERMS OF THE DISPOSAL 19 PART IV FINANCIAL INFORMATION RELATING TO THE TARGET GROUP 24 PART V UNAUDITED PRO FORMA FINANCIAL INFORMATION RELATING TO THE GROUP 28 PART VI ADDITIONAL INFORMATION 33 PART VII DEFINITIONS 43 NOTICE OF GENERAL MEETING 47 3
EXPECTED TIMETABLE OF PRINCIPAL EVENTS Posting of this Circular 10 September 2014 Latest time and date for receipt of Voting Forms or CREST Proxy Instructions from Shareholders and members of the Standard Life Share Account for the General Meeting 6pm on 1 October 2014 General Meeting 2pm on 3 October 2014 Expected date of completion of Share Disposal (subject to approvals) First quarter of 2015 NOTES: Unless otherwise stated, references to times in this Circular are to London time. Future dates are indicative only and are subject to change by Standard Life, in which event details of the new times and dates will be notified to the Financial Conduct Authority and, where appropriate, Shareholders. 4
PART I LETTER FROM THE CHAIRMAN OF STANDARD LIFE (Incorporated and registered in Scotland with registered number SC286832) Directors Sir Gerry Grimstone, Chairman David Nish, Executive Director and Chief Executive Keith Skeoch, Executive Director and Chief Executive of Standard Life Investments Luke Savage, Executive Director and Chief Financial Officer Pierre Danon, Non-Executive Director Crawford Gillies, Non-Executive Director David Grigson, Non-Executive Director Noel Harwerth, Non-Executive Director John Paynter, Senior Independent Non-Executive Director Lynne Peacock, Non-Executive Director Martin Pike, Non-Executive Director Registered Office Standard Life House 30 Lothian Road Edinburgh EH1 2DH 8 September 2014 To: Standard Life Shareholders Dear Shareholder, 1. Introduction Proposed disposal of Standard Life s Canadian business On 3 September 2014, the Board announced that Standard Life had entered into an agreement with respect to the sale of its Canadian business, comprising Standard Life Group s Canadian long-term savings and retirement, individual and group insurance business (Standard Life Financial) and Canadian investment management business (Standard Life Investments Inc.), to the Purchaser, a wholly-owned subsidiary of Manulife, for a total cash consideration of C$4.0bn (equivalent to 2.2bn) payable on completion of the sale. The principal terms of this agreement are described in more detail in Section 4 below. Standard Life Group s global asset management business, Standard Life Investments, has also entered into a Global Collaboration Agreement with Manulife. The Disposal is conditional upon the approval of Shareholders at the General Meeting, and is also conditional upon, inter alia, approval from certain Canadian regulatory authorities, including OSFI, the Canadian Minister of Finance and the Canadian Competition Bureau. Following completion of the Disposal, Standard Life expects to return 1.75bn of capital (equivalent to 73p 1 per share) to Shareholders by way of a B/C share scheme (the Return of Capital ). Following the Return of Capital, Standard Life intends to carry out a share consolidation. The Return of Capital will require Shareholder approval, which the Board is expecting to seek in Q2 2015, following the completion of the 1 The per share figure is based on the current issued share capital. If the shares in issue increase prior to the Return of Capital, then the per share figure may reduce. 5
Disposal. The Return of Capital is not subject to regulatory approval but Standard Life will seek nonobjection from the relevant regulators. The Disposal, if completed, is of sufficient size relative to the Group to constitute a class 1 transaction for Standard Life under the Listing Rules and is therefore conditional upon, among other things, the approval of Shareholders. A General Meeting is to be held at 155 Bishopsgate, London EC2 at 2pm on 3 October 2014 for the purpose of seeking such approval. A notice convening the General Meeting, at which the Disposal Resolution will be proposed, is set out at the end of this Circular. This Circular sets out the proposed terms of the Disposal, including the background to and reasons for the Disposal, and explains why the Board considers the approval of the Disposal Resolution to be in the best interests of Standard Life and Shareholders as a whole. 2. Background to and reasons for the Disposal Standard Life Group s global investment expertise supported by its own distribution and strategic alliances globally means it is ideally positioned to deliver value for customers and clients and grow returns for Shareholders. The Group s simple business model remains unchanged: increasing assets, maximising revenue and lowering unit costs while optimising the balance sheet. Standard Life Group has been present in Canada for over 180 years and the Canadian long-term savings business is one of the oldest and most successful in the country. In recent years, management has been pursuing a strategy to re-orientate the business of Standard Life Financial towards a less capital intensive, fee-based revenue business, which has been consistent with the Group s overall strategy. Excellent progress has been made against this strategy recently. Standard Life Financial s total assets under administration were C$52bn at 30 June 2014, with fee-based assets under administration of C$33bn, up 10% over the last six months. Standard Life Financial s operating profit before tax in H1 2014 was 69m, up 37%, with fee-based revenue up 21% compared with H1 2013 (both in constant currency). Disciplined cost management has allowed continued investment for growth in fee based business without compromising profitability. Standard Life Financial has also had a strong track record of cash generation for the Group, with cumulative net dividends of C$1,054m paid since 2010. The Board believes that the corporate pensions and retail savings businesses in Canada are attractive but highly competitive, where a broad offering, strong distribution and low unit costs are increasingly critical to continued success. The Board believes the Disposal to a domestic Canadian party that can fully benefit from the combination with the Target Group is more likely to maximise value for Shareholders than retaining the business and pursuing an independent strategy in Canada. The Disposal includes the disposal of Standard Life Investments Inc., reflecting its operational interdependence with the insurance business. The Disposal is consistent with Standard Life Group s strategy and continued focus on growing fee-based businesses. The Disposal reduces Standard Life Group s exposure to spread risk business and the expanded relationship with Manulife deepens Standard Life Investments access to global distribution. The Global Collaboration Agreement with Manulife will seek to strengthen Standard Life Investments global distribution presence in Canada, the US and Asia. Standard Life expects that the relationship will more than treble Standard Life Investments assets under management distributed by Manulife (H1 2014: C$6bn) within three years of completion of the Disposal, accelerating growth in assets and high quality fee-based revenues. Following the Disposal and the acquisition of Ignis earlier this year, Standard Life Investments will manage 156bn of third party assets under management globally, 174% up from the start of 2010. 6
3. Key benefits of the Disposal - Achieves highly attractive value for Shareholders The agreed sale price of C$4.0bn ( 2.2bn) represents significant value for Shareholders and realises a oneoff IFRS gain on sale of 1.2bn 2. The price implies a price earnings multiple to forecast 2014 operating profit after tax of 19.5x 3 and a price to book value multiple of 1.9x. 4 These multiples compare favourably with comparable listed peers in Canada. - Global Collaboration Agreement significantly deepens Standard Life Investments global distribution reach As part of the Disposal, Standard Life Investments has entered into a Global Collaboration Agreement with Manulife. Through this relationship, Manulife will seek to distribute Standard Life Investments funds in Canada, the US and Asia, deepening Standard Life Investments distribution reach. The relationship is expected to treble Standard Life Investments assets under management distributed by Manulife (H1 2014: C$6bn) within three years. The new Global Collaboration Agreement builds on Standard Life Investments existing, highly successful relationship with John Hancock in the US, which has generated assets under management of US$5.6bn over the last three years. Standard Life Group and Manulife will also explore other potential opportunities for collaboration between their respective investment capabilities and distribution platforms. It is expected there may be opportunities for Standard Life Group to seek to generate up to C$3bn of assets under management for Manulife. Following completion of the Disposal, Standard Life Investments intends to set up a new office in Toronto to continue to serve its institutional clients locally. - Strengthened capital position enables an expected 1.75bn Return of Capital The Disposal strengthens the Group s capital position following receipt of expected net proceeds of 2.2bn. This will enable the Group to: (A) (B) return an expected 1.75bn of capital to Shareholders; and retain the remaining net proceeds for general corporate purposes. Standard Life Financial s business includes a relatively capital-intensive book of legacy spread risk business; as a result, the Disposal will substantially reduce the Group s overall capital requirements, volatility and exposure to market risk. 2 IFRS gain on sale estimated based on the book value as at 30 June 2014 and the estimated net proceeds. The actual IFRS gain on sale will depend on the book value as at the closing of the Disposal and the actual net proceeds received. 3 Based on the guidance for operating profit before tax of 155m in 2014 given at the time of the results for the half year ended 30 June 2014 and an assumed tax rate of 26.5%. 4 Based on book value of 1,146m as at 30 June 2014. 7
Standard Life Group s IGD surplus is expected to be enhanced by the Disposal. As at 1 July 2014, the Group s estimated IGD surplus following the acquisition of Ignis was 3.4bn; assuming the Disposal and Return of Capital had occurred on 1 July 2014, the Group s estimated IGD surplus would have been 3.2bn. - Enhances Standard Life Group s growth, earnings and cash profile The Disposal enhances the Group s medium-term earnings profile. (A) (B) The Group s fee-based revenue model will be enhanced by the Disposal. Since 2010, feebased revenues (excluding the Canadian business) have grown at an annual growth rate of 9%, 5 and would have represented 89% of total Group revenues for the six months ended 30 June 2014, had the Disposal occurred prior to this period. The Board believes that the Disposal and Return of Capital, together with the acquisition of Ignis announced earlier this year, will be accretive to Group operating earnings per share. 6 Following the proposed share consolidation, the Disposal and Return of Capital together are expected to be broadly neutral to operating earnings per share. 7 The growth prospects of Standard Life Group s core businesses are strong, and will be further enhanced by the new Global Collaboration Agreement with Manulife. (A) (B) (C) Standard Life Investments continues to deliver excellent investment performance for its clients, while expanding its investment capabilities and distribution reach, both globally and across a wider client base. The UK business is positioned to benefit from regulatory, market and demographic changes through its advanced technology, platforms and investment propositions which meet the needs of its retail and corporate customers and their advisers. The Group s joint ventures in India and China are well positioned for growth. Standard Life Group s simple business model of global investment expertise supported by its own distribution and strategic alliances globally means it is ideally positioned to deliver value for customers and clients and grow returns for Shareholders. - Standard Life intends to maintain its progressive dividend policy Following the Disposal and Return of Capital (and subsequent share consolidation), it is the Board s intention that Standard Life s progressive dividend policy of growth in dividend per share will be maintained. This is consistent with Standard Life s unbroken record of annual growth in dividend per share since listing in 2006 and underpinned by the Group s growth prospects. 5 Compound annual growth rate based on fee based revenue (excluding Standard Life Financial) for the half year ended 30 June 2014 of 654m compared with the full year ended 31 December 2010 of 973m. 6 Calculated as if the Disposal and Return of Capital had both completed at the beginning of the relevant financial period with the share consolidation ratio set by reference to the current share price of 383 pence as at 2 September 2014. 7 See footnote 6 above. 8
4. Principal terms and conditions of the Disposal The Share Disposal Agreement between Standard Life, the Seller (one of Standard Life s wholly-owned subsidiaries) and the Purchaser has been entered into, pursuant to which the Seller has agreed to sell shares in Standard Life Financial and Standard Life Investments Inc., the Group s asset management subsidiary in Canada. Pursuant to the Share Disposal Agreement, a Business Transfer Agreement is to be entered into between Standard Life Assurance and the Purchaser and one or more affiliates of Manulife under which Standard Life Assurance would agree to transfer the business of its Canadian branch to the Purchaser and one or more subsidiaries of Manulife. The Standard Life Assurance Canadian Business is currently fully reinsured to Standard Life Assurance Canada. The Share Disposal is not conditional upon the Business Transfer completing but the Business Transfer is conditional on the Share Disposal completing. The total consideration payable in cash to the Seller by the Purchaser in respect of the Disposal is C$4.0bn ( 2.2bn). The total consideration payable on completion is subject to limited closing adjustments only. The Share Disposal is expected to complete in the first quarter of 2015. Completion of the Share Disposal is conditional upon, among other things, obtaining the relevant regulatory approvals in Canada, including from OSFI, the Canadian Minister of Finance, the Canadian Competition Bureau and Ontario and Quebec securities authorities and the approval of the Shareholders at the General Meeting of Standard Life. The Purchaser has committed to making commercially reasonable efforts to obtain such approvals. In the case of the approval by the Canadian Competition Bureau, the Purchaser has agreed to negotiate and implement by way of a consent agreement any remedy required to obtain clearance. In return for the Purchaser agreeing to take such action, and in the event that remedies of a material nature are required by the Canadian Competition Bureau, Standard Life has agreed to pay to the Purchaser an amount related to the cost to the Purchaser of such remedies up to a maximum of 10% of the total consideration for the Disposal. Further details of the Disposal Agreements are set out in Part III (Principal Terms of the Disposal) of this Circular. 5. Key information on the Global Collaboration Agreement As part of the Disposal, Standard Life Investments has entered into a Global Collaboration Agreement with Manulife. Through this relationship, Manulife will seek to distribute Standard Life Investments funds in Canada, the US and Asia, deepening Standard Life Investments distribution reach. The relationship will seek to cover a broad range of Standard Life Investments investment capabilities including global absolute return, equities and fixed income, which are expected to be distributed through Manulife s retail and wholesale channels, but also has the potential to include investments by Manulife s general account. Standard Life Investments and Manulife will also explore other potential opportunities for collaboration between their respective investment capabilities and distribution platforms and it is expected there may be opportunities for Standard Life Investments to seek to generate up to C$3bn of assets under management for Manulife. The Global Collaboration Agreement is expected to more than treble Standard Life Investments assets under management distributed by Manulife within three years of completion of the Disposal. Currently, Standard Life Investments manages US$5.6bn of assets under management through its existing, highly successful relationship with John Hancock, the US unit of Manulife. 6. Financial effects of the Disposal and use of proceeds On completion of the Disposal, the Group is expected to receive net cash proceeds (after estimated transaction costs) of approximately 2.2bn, representing approximately 24% of Standard Life s market capitalisation as at 2 September 2014. 9
Standard Life intends to return 1.75bn (equivalent to 73p 8 per share) to Shareholders based in the UK by means of a B/C share scheme alongside a share consolidation. The expected remaining net proceeds of 0.45bn will be retained for general corporate purposes. The planned Return of Capital to Shareholders follows the special dividend of 302m in respect of 2012, the acquisition of Newton s private client business in 2013 and Ignis in 2014. These steps, and the continuation of the Group s progressive dividend policy, further demonstrate Standard Life s focus on disciplined deployment of capital resources. The Group will continue to monitor regularly its balance sheet, including the appropriate level of capital, liquidity and debt, but also taking into account opportunities to further invest in and grow the Group s businesses. The Disposal is expected to generate a one off IFRS gain on sale of 1.2bn. 9 Had the Disposal and the Return of Capital occurred on 30 June 2014, the pro forma net assets of the Group would have been 3.8bn compared with 4.6bn. The Disposal is expected to enhance the capital strength of the Group, thus enabling Standard Life to effect the Return of Capital to Shareholders. Standard Life Group s IGD surplus is expected to be enhanced by the Disposal. As at 1 July 2014, the Group s estimated IGD surplus following the acquisition of Ignis was 3.4bn; assuming the Disposal and Return of Capital had occurred on 1 July 2014, the Group s estimated IGD surplus would have been 3.2bn. On the same basis, the Group s debt leverage ratio would rise from 31% to 32% of total capital as at 30 June 2014. The Board believes that the Disposal and Return of Capital, together with the acquisition of Ignis announced earlier this year, will be accretive to Group operating earnings per share 10. Following the proposed share consolidation, the Disposal and Return of Capital together are expected to be broadly neutral to operating earnings per share 11. 7. Information on the Canadian business Standard Life Financial provides long-term savings, investment and insurance solutions to more than 1.4 million Canadians, including group retirement and insurance plan members. Standard Life Financial is Standard Life s largest regional operation outside the UK with assets under administration of 28.3bn as at 30 June 2014. The Disposal also comprises Standard Life Investments domestic operations in Canada with 19.1bn of assets under management, of which 12.7bn are managed on behalf of third parties, as at 30 June 2014. Summary financial information with respect to the Canadian business (including Standard Life Investments domestic operations in Canada) is set out below: m HY 2014 2013 Fee-based revenue 104 203 Spread risk margin 103 351 Total income 207 554 Operating profit before tax 70 251 Operating profit after tax 53 200 Profit for the period attributable to equity holders of Standard Life 88 145 Gross assets 12 28,093 27,312 Net assets 1,146 1,292 Assets under administration ( bn) 30.1 29.2 8 See footnote 1 above. 9 See footnote 2 above. 10 See footnote 6 above. 11 See footnote 6 above. 12 Gross assets presented for the year ended 31 December 2013 have been restated to show the effect of the change in accounting policy due to the adoption of IFRS 10 Consolidated financial statements and IFRS 11 Joint arrangements for the financial period beginning on 1 January 2014. 10
8. Information on Manulife Manulife is a leading Canada-based financial services group with principal operations in Asia, Canada and the US. Clients look to Manulife for strong, reliable, trustworthy and forward-thinking solutions for their most significant financial decisions. Manulife s international network of employees, agents and distribution partners offers financial protection and wealth management products and services to millions of clients. Manulife also provides asset management services to institutional customers. Funds under management by Manulife and its subsidiaries were approximately C$637 billion as at 30 June 2014. Manulife s group operates as Manulife in Canada and Asia and primarily as John Hancock in the US. Manulife Financial Corporation trades as MFC on the TSX, NYSE and PSE, and under 945 on the SEHK. Manulife can be found on the Internet at manulife.com. 9. Board, management and employees There are not expected to be any changes to the Board as a result of the Disposal. The Canadian business has, for many years, been run by its local management team, currently including Charles Guay (President and Chief Executive Officer of Standard Life Assurance Canada) and Roger Renaud (President of Standard Life Investments Inc.), who will transfer with the business as part of the Disposal. There are no senior management or employees of the Target Group who are key to the operation of the Retained Group s businesses. The Target Group employed 2,148 members of staff as at 30 June 2014. Following the Disposal, it is expected that the total number of employees of the Retained Group will be 6,564. 10. Return of Capital If the Disposal is approved at the General Meeting and becomes effective, the Board is proposing to return a proportion of the proceeds from the Disposal to Shareholders by way of a B/C share scheme. The Board considered a number of methods for returning capital to Shareholders and, having regard to the differing positions of the Shareholders, concluded that a B/C share scheme would be the most favourable method. In reaching this conclusion, the Board considered in particular the position of retail shareholders and the benefits of completing the Return of Capital to Shareholders within a fixed time frame. In conjunction with the Return of Capital, the Board proposes to implement a share consolidation. Under the B/C share scheme as it is currently to be implemented, all Shareholders will be issued unlisted, non-voting bonus shares, which will either be redeemed by Standard Life for cash or the holders will receive a special dividend (those shares thereafter being cancelled or repurchased), depending on Shareholder elections and subject to applicable securities laws. There will be no difference in the amount of cash received by Shareholders as a result of their election, although the tax treatment may differ. Given the scale of the Disposal and the intended Return of Capital, Standard Life intends to effect a consolidation of its ordinary share capital. The intended Return of Capital is subject to Shareholders approving the relevant resolutions at the time they are proposed and the obtaining of customary clearances. The Return of Capital will require Shareholder approval, which the Board is expecting to seek in Q2 2015, following the completion of the Disposal. The Return of Capital is not subject to regulatory approval but Standard Life will seek the non-objection of the relevant regulators. 11
11. Dividend policy Following the Disposal, Standard Life will continue to pursue a progressive dividend policy, by reference to the per share dividend paid in recent years, taking account of market conditions and the Group s financial performance at the time. As a result of the proposed share consolidation in connection with the Return of Capital, the number of shares in issue will reduce, such that the aggregate cost of the dividend will reduce. The Group intends to announce its 2014 final dividend, the amount of which has yet to be determined, with the Group s full year results for 2014, on 20 February 2015. Standard Life declared an interim dividend of 5.60 pence per share with its interim results on 5 August 2014 which will be paid to Shareholders on 21 October 2014 to Shareholders on the register on 12 September 2014. 12. Exchange rate The Consideration will be received by the Seller in Canadian Dollars. References in this Circular to the expected proceeds and other items relating to the Disposal in Sterling have been converted from the Canadian Dollar amount applying an exchange rate of 1.80:1, being the closing UK rate as published by close of business on 2 September 2014. Standard Life pursues a hedging strategy in relation to its Canadian business, to manage associated exchange rate volatility. In line with this strategy, 100% of the expected transaction proceeds have been hedged. 13. Current trading and future prospects Standard Life Group issued its results for the half year ended 30 June 2014 on 5 August 2014. It contained the following statement on current trading and future prospects: Our UK business is capitalising on being shaped and positioned to benefit from regulatory, market and demographic changes. This, combined with our investment expertise and focus on providing value for our customers, is driving demand for our propositions across the retail, workplace, institutional and wholesale channels. Our auto enrolment propositions continue to prove popular and we expect to add over 300,000 new corporate customers in 2014, establishing new valued and lasting relationships. Standard Life Investments remains focused on delivering excellent investment performance, expanding its investment capabilities and increasing its distribution channels and geographic reach. This is reflected in a robust pipeline of institutional business and continued demand for our wholesale propositions. For guidance, we expect two large very low revenue margin mandates, totalling c 2.3bn of AUM, to disinvest in Q3 2014 with a negligible impact on both revenue and profit. The integration of lgnis has started well and although it is at an early stage we see good momentum in the business. The acquisition enhances the strategic position of Standard Life Investments and will be earnings accretive in its first full year. Canada continues to build momentum in its fee based propositions. Its reported profitability will continue to be impacted by the weakness in the Canadian Dollar. Should the Canadian Dollar exchange rate seen in the first half of the year persist for the duration of the year we expect a negative impact of c 25m on previous guidance of 180m annual operating profit in Canada. Our Asia and Emerging Markets business is well positioned for further growth in the attractive international markets in which it operates. We continue to monitor developments in respect of foreign direct investment rules in India. 12
We look forward to the future with confidence as we continue to capitalise on the strong distribution capabilities of our long-term savings businesses and our global investment expertise. We are innovating and driving efficiency to deliver the right propositions and value for our customers. These strengths, combined with our strong balance sheet, mean we can continue to deliver value for customers and grow returns for our shareholders. Profit forecast for the year ended 31 December 2014 The Chief Executive of the Group issued guidance on 5 August 2014 that the operating profit of Standard Life s Canadian business is expected to be around 155m for the full year ended 31 December 2014: In the past we have provided guidance that our on-going run-rate for operating profit in Standard Life s Canadian business of around 180 million would be appropriate. We would repeat that guidance, but would note that performance in 2014 will obviously be impacted by the continued weakness in the Canadian dollar. Average exchange rates were 14% lower in 2014 compared to 2013, and so our guidance of 180 million should translate and be reduced by around 25 million if exchange rates continue to be seen in the second half as existed in the first half. (the Profit Forecast ). Basis of preparation The Profit Forecast has been properly compiled based on the assumptions stated below, on a basis consistent with the accounting policies of the Group and in accordance with the operating profit methodology anticipated to be applicable for the full year ended 31 December 2014. The Directors have prepared the Profit Forecast based on the unaudited interims for the six months ended 30 June 2014 and the unaudited forecast results for the six months ended 31 December 2014. Assumptions The Directors have prepared the Profit Forecast based on the following assumptions: (A) Factors outside the influence or control of the Directors (i) (ii) (iii) (iv) (v) There will be no material change to macroeconomic, political or legal conditions in the markets or regions in which Standard Life s Canadian business operates that materially affect Standard Life s Canadian business during the six months ended 31 December 2014; There will be no material changes to market conditions within the long term savings and investment sector in which Standard Life s Canadian business operates in the six months ended 31 December 2014 in relation to customer demand or competitive environment; The exchange rates and inflation and tax rates in relation to Standard Life s Canadian business will remain materially unchanged from the prevailing rates; There will be no material change in the operating expenses of Standard Life s Canadian business driven by external parties or regulations; There will be no business disruption that will have a significant impact on Standard Life s Canadian business s operations, customers or financial performance; and 13
(vi) There will be no material change in legislation or regulatory requirements impacting Standard Life s Canadian business s operations or accounting policies. (B) Factors within the influence or control of the Directors (i) Aside from the usual trading activities of Standard Life s Canadian business there are no material changes to Standard Life s Canadian business s book of business during the six months ended 31 December 2014. 14. Risk factors For a discussion of the risks and uncertainties which you should take into account when considering whether to vote in favour of the Disposal Resolution, please refer to Part II (Risk Factors) of this Circular. 15. General Meeting A notice convening the General Meeting to be held at 2 p.m. on 3 October 2014 at 155 Bishopsgate, London EC2 is set out at the end of this Circular. As a class 1 transaction for the purposes of the Listing Rules, Standard Life requires the approval of Shareholders to proceed with the Disposal. The completion of the Disposal is therefore conditional, among other conditions set out in Part III (Principal Terms of the Disposal) of this Circular, on the passing of the Disposal Resolution at the General Meeting. 16. Action to be taken A Voting Form for use in connection with the Disposal Resolution to be proposed at the General Meeting is enclosed for those Shareholders or members of the Standard Life Share Account who have received this Circular in hard copy. Otherwise, a Voting Form will either have been sent to you in hard copy or is available electronically through www.standardlifeshareportal.com. Whether or not you intend to be present in person at the General Meeting, you are requested to complete the Voting Form and return it in accordance with the instructions printed on it and as set out in note (a) on page 48 of this Circular. Alternatively, Voting Forms can be completed electronically through www.standardlifeshareportal.com. Shareholders holding their Shares in uncertificated form (i.e. in CREST) may appoint a proxy by completing and transmitting a CREST Proxy Instruction as set out in notes (a) and (c) on page 48 of this Circular. Apart from completing and submitting the Voting Form (and CREST Proxy Instruction if applicable), you need take no further action. The submission of a Voting Form or CREST Proxy Instruction will not prevent Shareholders from attending the General Meeting and voting in person if they wish. Members of the Standard Life Share Account who wish to attend and vote in person at the General Meeting must complete, sign and return the Voting Form with their own name in the nominated proxy box. 17. Additional information Your attention is drawn to the additional information set out in Part VI (Additional Information) of this Circular. You are advised to read the whole document and not merely to rely on the key summarised information in this letter. 18. Financial Advice The Board has received financial advice from J.P. Morgan Cazenove in relation to the Disposal. In providing their financial advice to the Board, J.P. Morgan Cazenove has relied upon the Board s commercial assessment of the Disposal. 14
19. Directors recommendation The Board considers the Disposal and the Disposal Resolution to be in the best interests of Standard Life and the Shareholders as a whole. Accordingly, the Board unanimously recommends that you vote in favour of the Disposal Resolution to be proposed at the General Meeting, as the Directors intend to do in respect of their own beneficial holdings of Shares, being in aggregate 4,594,796 Shares, representing approximately 0.19% of Standard Life s issued ordinary share capital, in each case at 5 September 2014 (the latest practicable date prior to the publication of this Circular). Yours sincerely Sir Gerry Grimstone Chairman Standard Life 15
PART II RISK FACTORS Prior to making any decision to vote in favour of the Disposal Resolution at the General Meeting, Shareholders should carefully consider, together with all other information contained in this Circular, the specific factors and risks described below. Standard Life considers these to be the known material risk factors relating to the Disposal for Shareholders to consider. The risks described below relate only to the Disposal and are not set out in any particular order of priority. There may be other risks of which the Board is not aware or which it believes to be immaterial which may, in the future, be connected to the Disposal and have a material and adverse effect on the business, financial condition, results of operations or future prospects of the Retained Group after the Disposal (or the Group if the Share Disposal does not take place). 1. Risks related to the Disposal taking place 1.1 Warranties and indemnities given by the Seller The Share Disposal Agreement contains warranties, undertakings and indemnities given by the Seller (and guaranteed by Standard Life) in favour of the Purchaser, which could cause the Retained Group to incur liabilities and obligations to make payments which would not have arisen had the Share Disposal Agreement not been entered into. In particular, the Seller has indemnified the Purchaser against breaches of certain warranties and undertakings. The Business Transfer Agreement is expected to contain warranties, undertakings and indemnities given by Standard Life Assurance in favour of the Purchaser when entered into, which could cause the Retained Group to incur liabilities and obligations to make payments which would not have arisen had the Business Transfer Agreement not been entered into. In particular, Standard Life Assurance is expected to indemnify the Purchaser against breaches of certain warranties and undertakings. If the Seller and/or Standard Life Assurance are required in the future to make payments in respect of these warranties, undertakings or indemnities, this would have an adverse effect on the Retained Group s cash flow and financial situation. The aggregate liability of the Seller and Standard Life Assurance under the indemnification provisions set out in the Share Disposal Agreement and the Business Transfer Agreement is capped at 20% of the Consideration (other than in relation to certain tax liabilities). Further details of the warranties, undertakings and indemnities given are set out in Part III (Principal Terms of the Disposal) of this Circular, including in relation to Standard Life s agreement to pay to the Purchaser an amount related to the cost to the Purchaser of complying with remedies of a material nature required by the Canadian Competition Bureau up to a maximum of 10% of the total consideration for the Disposal. 1.2 Warranties and indemnities given by the Purchaser The Share Disposal Agreement contains certain warranties, undertakings and indemnities given by the Purchaser in favour of the Seller. The Business Transfer Agreement is expected to contain certain warranties, undertakings and indemnities given by the Purchaser (or an associated entity) in favour of Standard Life Assurance. The extent to which the Purchaser will, if at all, be required to make payments in respect of these warranties, undertakings and indemnities is unpredictable. If, however, the entity providing the indemnity suffers financial distress, any payments due to the Seller and/or Standard Life Assurance in respect of such warranties, undertakings and indemnities may be put at risk. 16
1.3 Conditions The completion of the Share Disposal is subject to certain conditions as listed in Sections 1.3 of Part III (Principal Terms of the Disposal) of this Circular. The completion of the Business Transfer is expected to be subject to similar conditions (to the extent applicable to the transactions contemplated by the Business Transfer Agreement). There can be no assurance that these conditions will be satisfied or, where relevant, waived. If any condition is not either satisfied or waived, the Share Disposal and/or the Business Transfer (as applicable) will not proceed. 1.4 The Retained Group s operations will be less diversified Following the Disposal, the Retained Group s business will be less diversified, and in particular will have greater reliance on its United Kingdom business. Weak performance in the remaining businesses, or in any particular part of these businesses, may therefore have a proportionately greater adverse impact on the financial condition and credit rating of the Retained Group. 1.5 Pre-closing changes in the Target Group During the period from the signing of the Share Disposal Agreement and Business Transfer Agreement to completion of the Share Disposal and Business Transfer (as applicable), events or developments may occur which could make the terms of the Share Disposal Agreement and/or Business Transfer Agreement less attractive for Standard Life. In particular, a Consideration adjustment mechanism is included in the Share Disposal Agreement. Further details on this mechanism are set out in Section 1.2 of Part III (Principal Terms of the Disposal) of this Circular. The Seller may be obliged to complete the Share Disposal and Standard Life Assurance may be obliged to complete the Business Transfer notwithstanding such events or developments. This may have an adverse effect on the business, financial condition and results of the Retained Group. 1.6 Standard Life may not realise the perceived benefits of the Disposal Standard Life may not realise all of the anticipated benefits of the Disposal set out in Part I (Letter from the Chairman of Standard Life) of this Circular. Standard Life may encounter unforeseen difficulties in achieving these anticipated benefits and/or these anticipated benefits may not materialise. 1.7 Global Collaboration Agreement The Global Collaboration Agreement provides that Standard Life Investments and Manulife will work together in good faith to expand existing collaboration efforts and develop and implement new initiatives of collaboration. However, no assurance can be given that the parties will be able to find such opportunities to collaborate and either party may terminate the agreement without cause or penalty. 2. Risks relating to the Disposal not taking place 2.1 Potentially disruptive effect on the Group If the Share Disposal does not proceed, the Target Group s management and employees may be affected and key management or employees may choose to leave the Target Group. This may have a negative effect on the performance of the Target Group under Standard Life s ownership. There may also be uncertainty for customers of the Target Group as to Standard Life s future intentions for the Target Group. To maintain shareholder value, Standard Life s management would be required to continue to allocate time and resources to the ongoing supervision and development of the Target Group. 17
2.2 Loss of shareholder value The Board believes that the Disposal is in the best interests of the Shareholders taken as a whole and that it currently provides the best opportunity to realise an attractive and certain value for the Target Group. If the Disposal does not complete, the value to Standard Life of the Target Group may be lower than can be realised by way of the Disposal and Standard Life s ability to deliver additional tangible shareholder value may be delayed or prejudiced. 2.3 Break Fee If the Share Disposal does not complete, the Seller may, in certain circumstances (as set out in Section 1.7 of Part III (Principal Terms of the Disposal) of this Circular), be liable to pay to the Purchaser certain sums to compensate the Purchaser for the non-completion of the Share Disposal. 2.4 Completion of the Share Disposal before the Business Transfer Completion of the Share Disposal is not conditional on completion of the Business Transfer. It is possible that completion of the Business Transfer may be delayed or may not occur, resulting in potential continuing exposure of Standard Life to the Canadian insurance market and alternative arrangements being required in respect of the Standard Life Assurance Canadian Business. For any period following completion of the Share Disposal where the Business Transfer has not completed, transitional services arrangements will be put in place. 18
PART III PRINCIPAL TERMS OF THE DISPOSAL The following is a summary of the principal terms of the Disposal Agreements. As set out in Section 15 of Part VI (Additional Information) of this Circular, the Disposal Agreements are available for inspection by Shareholders. 1. Share Disposal Agreement 1.1 Parties and structure The Share Disposal Agreement was entered into on 3 September 2014 between the Seller, the Purchaser and Standard Life for the sale and purchase, subject to the satisfaction of certain conditions, of the Target Shares. 1.2 Consideration The consideration for the purchase of the Target Shares (the Consideration ) is the sum of C$4.0bn ( 2.2bn), subject to adjustments for: (A) (B) (C) the payment of an additional amount referable to the period between 3 February 2014 and completion of the Share Disposal which is calculated by reference to the prime rate offered from time to time by the Bank of Montreal; the injection of capital into, or payment of distributions by, the Target Group; and the resolution of existing tax litigation in excess or below a targeted settlement amount. 1.3 Conditions to completion The Share Disposal is conditional upon: (A) (B) certain fundamental warranties given by the Seller and the Purchaser (dealing with matters including (but not limited to) title to shares, capacity and solvency) being true and correct at the time of completion of the Share Disposal, except where the failure to be true and correct would not give rise to a Material Adverse Effect in the case of the Seller, or a Purchaser Material Effect in the case of the Purchaser (with each such term having the meaning given to it in the Share Disposal Agreement); compliance by the Seller and the Purchaser with the covenants contained in the Share Disposal Agreement to be performed or complied with before completion of the Share Disposal, except where the failure to do so would not give rise to a Material Adverse Effect in the case of the Seller, or a Purchaser Material Effect in the case of the Purchaser (with each such term having the meaning given to it in the Share Disposal Agreement); (C) no governmental authority of competent jurisdiction having enacted, issued or promulgated or revised any law that would have a material adverse effect on the ability of the parties to consummate the proposed transactions; (D) (E) no change of law taking place between signing and closing that would have a material adverse effect on the ability of the parties to the Share Disposal Agreement to consummate the proposed transaction; the Share Disposal Competition Approval; 19
(F) (G) (H) (I) (J) the Share Disposal Insurance Approval; the Share Disposal Ontario and Quebec Securities Approvals; there being no order of a governmental authority enjoining, materially restricting or prohibiting the consummation of the transactions contemplated under the Share Disposal Agreement, nor any legal proceeding pending that would reasonably be expected to enjoin, materially restrict or prohibit consummation of the proposed transactions; the support principle letter delivered by Standard Life to OSFI in respect of the Canadian operations of the Target Group being returned to the Target Group by the Superintendent or OSFI confirming in writing that such letter having been terminated; and the passing of the Disposal Resolution by Shareholders. In the case of the Share Disposal Competition Approval, the Purchaser has agreed to negotiate and implement by way of a consent agreement any remedy required to obtain clearance. In return for the Purchaser agreeing to take such action, and in the event that remedies of a material nature are required by the Canadian Competition Bureau, Standard Life has agreed to pay to the Purchaser an amount related to the cost to the Purchaser of such remedies up to a maximum of 10% of the total consideration for the Disposal. Completion of the Share Disposal is expected to occur on the last business day of that calendar month in which the satisfaction of all of the conditions (other than those which by their nature are to be satisfied at completion) takes place, unless there are less than seven business days until such date, in which case completion will take place on the last business day of the following calendar month. A different completion date may be agreed to in writing by the Purchaser and the Seller. Completion of the Share Disposal is not conditional on completion of the Business Transfer. 1.4 Warranties, indemnities and limitations on liability The Seller has provided such general warranties as are customary for a transaction of this kind to the Purchaser with respect to itself, Standard Life and the Target Group. These warranties relate to, among other things, title, capacity, authority and solvency matters, together with such additional business warranties as are customary for a transaction of this nature. The Seller has agreed to indemnify the Purchaser for: (i) any breach of any representation or warranty of the Seller prior to the date of the Share Disposal Agreement; (ii) any breach of certain fundamental warranties (dealing with matters including title, capacity and solvency) on or prior to completion of the Share Disposal; (iii) certain pre-closing taxes and taxes related to the closing; and (iv) any breach or any non-fulfilment of any covenant or agreement on the part of the Seller contained in the Share Disposal Agreement. The Seller shall not be liable to indemnify any losses (i) in respect of breaches of representations and warranties (other than certain fundamental representations and warranties) for which a notice of claim has not been served on or before the end of the eighteen (18) month period following completion of the Share Disposal, or (ii) in respect of breaches of fundamental representations and warranties for which a notice of claim has not been served on or before the end of the fifth (5th) anniversary of the completion of the Share Disposal or (iii) in respect of breaches of covenants, for which a notice of claim has not been served on or before the offend of the eighteen (18) month period following the date the covenant is to be performed by the Seller. 20