Standard Life's IPO timing not good for members

Based on the grey market, analysts expect the offer price to be relatively low, writes Laura Slattery

On Monday the Edinburgh-based life assurance company Standard Life will float on the London stock exchange.

Some 98 per cent of the company's members, including as many as 94,000 Irish members, voted in May to end 80 years of mutual ownership and now pay day is almost upon them. By now, eligible members should have been told how many shares they are entitled to and decided whether they want to hold on to them and even buy more under the company's preferential share scheme, which gives a 5 per cent discount on the offer price.

The deadline for applying for Standard Life's share offers was 10am last Wednesday and those who have decided to become shareholders in the company and those who have decided to cash in their windfall will now be waiting for the final offer prices to be announced.

These will be confirmed on or before this Sunday, the eve of Standard Life's market debut.

Markets have been spluttering a little of late, which meant Standard Life had to cut the price range for its listing by about 10 per cent last month.

In April it announced an initial public offer (IPO) price range of 240-290 pence per share, which valued the company at up to £5.5 billion (€7.9 billion).

But the FTSE 100 index promptly dropped around 9 per cent, while UK life insurance stocks fell 15 per cent in value, forcing Standard Life to issue a revised price range of 210-270 pence per share, valuing the company at up to £5.25 billion.

The average cash windfalls expected from the demutualisation were cut by 9 per cent. The average sum typical members of the company are on course to receive is now €664-€1,319, down from the original expectation of €730-€1,450.

The exact value of the windfalls members will receive will depend on the type of policy held, the size of the investment and how long they have held it, as well as the flotation share price.

The flotation price range announced is still likely to propel Standard Life into the FTSE 100 index of bluechip firms as the fifth largest UK-listed life insurance company.

After years of battering by the stock market bear years from 2000-2003, Standard Life returned to profit last year. But the market's recent bad patch has not been good timing for the company. Based on grey market prices, analysts in the UK have said they expect the initial offer price to be at the lower end of the 210-270 pence per share price bracket, possibly in the 210-230 pence per share range. This would value the company at up to £4.7 billion.

Chief executive Sandy Crombie said in June that the company had "real confidence" that the IPO could be achieved within the 210-270 pence per share range, although he admitted that "one could always hope for better markets".

What happens to Standard Life after it floats will depend on the state of equity markets generally and on the company's business performance. It aims to raise £1.1 billion in net new capital from investors through the IPO, which it will use to support its capital adequacy and finance an expansion of its business. Merger and acquisition rumours, as well as demand from index-tracking funds, could boost the initial float price in the short term.

In the long term, there are no guarantees that the share price will hold its own. UK life assurer Friends Provident lost 22 per cent of its value after it demutualised.

The company could become a takeover target, but analysts have suggested that any bidders would have come forward before the flotation. Standard Life said earlier this year that it had received "a number" of approaches, which its board rejected.

Meanwhile, from next year members who are now shareholders will start to receive income from dividends. The company says it expects to pay its first dividend of 5.4 pence per share, relating to the second half of 2006, next May. If Standard Life floats at the mid-point of its price range, this would represent a yield of 4.5 per cent.

Shareholders can always sell their shares later, but those who hold on to them for a year will qualify for Standard Life's share bonus scheme, under which they will receive one bonus share for every 20 shares held continuously for a year after the flotation. - (Additional reporting, Reuters)