Shares in asset management firm Standard Life (LSE: SL) rose by 9% when markets opened this morning, after the firm said that it had sold its Canadian business for 2.2bn and would be returning 1.75bn to shareholders.
A cracking price
On the face of it, Standard Life seems to have done a cracking good deal.
The 2.2bn price tag agreed by the buyer, Canadian firm Manulife Financial Corporation, equates to a P/E of 19.5, and is 1.9 times the book value of the assets being sold.
Shareholders will receive a return of 1.75bn, equivalent to 73p per share, through a so-called B/C share scheme, which allows shareholders to choose whether to receive the money as income or capital, to minimise tax implications.
Not a special dividend!
Its important for shareholders to understand that this capital return isnt a special dividend Standard Life is, effectively, shrinking its business.
To maintain a consistent share price and earnings per share following the capital return, Standard Life is planning to reduce the number of shares in circulation, by means ofa share consolidation.
This is what happened following Vodafones sale of its Verizon Wireless stake, and means that Standard Life shareholders will see the number of shares in their holding fall, reflecting the money they receive back in the capital return.
What about the future?
Although Standard Life will no longer have a comprehensive savings, retirement and insurance business in Canada the firms largest market outside the UK it wont be disappearing from this major market completely.
Standard Life has agreed a global collaboration agreement with Manulife, which will see the Canadian firm sell Standard Lifes investment funds to its customers in Canada, the US and Asia.
Standard Life says that todays deal, combined with its recent 390m acquisition of Ignis Asset Management, is expected to generate medium-term earnings per share growth, based on the planned reduction in the firms share count.
Is Standard Life still a buy?
At todays share price of around 415p, Standard Life shares trade on a 2014 forecast P/E of around 17, compared to 14.4 for Legal & General and 15.3 for Prudential.
With a 4% yield, Standard Life remains an attractive income play, but, in my view, uncertainty over future earnings growth could see the firms shares drift down again once the hype surrounding this deal fades away, which would provide a more attractive buying opportunity.
Indeed, I believe there are several better buys in the FTSE 100 — shares that have missed the bull market ‘rodeo ride’ and are currently trading at an unfair discount to the wider market.
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Roland Headowns shares in Vodafone. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
