Raising the standards

On Lothian Road in Edinburgh, there are some anxious people. Next week,
policyholders of Standard Life, the mutual insurer whose offices loom over the
city thoroughfare, will formally meet to vote on its demutualisation.

The management will not be the only ones nervous about the outcome. The vote
and the IPO that seems likely to result from it will be one of the major
business events of 2006. PricewaterhouseCoopers, the advisers to the project on
the accounting side, stand to take a chunk of a prospective £250m expected to be
spent on the plan.

That’s on top of a fee of £17m paid to PwC for its regular auditing of the
group disclosed in last year’s annual report, large fees for a company the size
of Standard Life.

The 31 May vote is a poll of Standard’s 2.4m members. One of the UK’s largest
life assurers, it is expected to vault into the FTSE100 at one leap, being
valued at around £5bn. But the path will not necessarily be straightforward.

On one level, there is some disgruntlement from policyholders. Some contend
that, had the group demutualised in 1999, they could have got twice or three
times the amount on offer.

Others disagree, saying that any plan then would have hit a bear market in
2001, making it difficult to get away the shares.

Tom McPhail, pensions expert at Hargreaves Lansdown, doesn’t anticipate the
vote will be too tricky. ‘There have been no more than one or two dissenting
voices I’ve spoken to, and that’s mainly been for the publicity,’ he says.

Policyholders have seen the value of the move after a difficult few years for
Standard Life, following crisis solvency talks with the FSA in late 2004. As
part of the demutualisation documents, it has emerged that the group would have
made a loss under plc reporting rules for 2004 of over £400m.

‘It’s a very competitive world for insurance companies,’ McPhail says. ‘It’s
hard to raise capital as a mutual, and without capital, Standard cannot compet
e,’ he argues.

The potential float will be critical to Alison Reed, Standard’s new FD.
Reed’s acceptability to the city may prove a key factor in the float, especially
given a certain amount of scepticism towards her after her time at Marks &

Retail investors are set to be another important constituency. The group is
offering carrots to policyholders to stick around as retail investors, to ward
off potential bidders and dilute the power of institutional investors.

A recent economic impact study suggested that Standard Life constitutes
almost 10% of Edinburgh-Lothian’s GDP, and 1.5% of Scotland as a whole. It
employs almost 1% of the Scottish workforce.

Sandy Crombie, the chief executive, Alison Reed, PwC, policyholders, and the
Scottish economy as a whole, next week and next month, will all be hoping that
everything goes to plan.

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