Phoenix Group to buy Abbey Life from Deutsche Bank

Phoenix Group has agreed to buy Abbey Life from Deutsche Bank subsidiary Deutsche Holdings for £935m in cash.

Phoenix said the deal, which is expected to generate about £0.5bn of aggregate cash flows between 2016 and 2020 and approximately £1.1bn from 2021 onwards, will add £10bn of assets under management and about 735,000 policyholders.

The group said the consideration and estimated expenses are to be financed through a fully underwritten rights issue to raise a total of £735m and a £250m new bank facility.

Chief executive officer Clive Bannister said: “This is a pivotal deal for Phoenix, giving us the platform and scale to continue as a leader in the consolidation of the UK life industry.The dynamics of this industry offer a number of value-accretive opportunities, as evidenced by the announcement of our acquisition of AXA Wealth's pensions and protection business earlier this year.

"This attractively-priced deal meets precisely Phoenix's areas of strategic focus and stated acquisition criteria, whilst significantly increasing our cash generation and supporting a further increase in our proposed dividend.”

Deutsche Bank, which has been under the cosh this week amid concerns about how it will settle a $14bn fine from the US Department of Justice for mis-selling mortgage-backed securities, said the transaction will result in an expected loss of about €800m, mostly due to the impairment of goodwill and intangible assets.

The bank’s chief executive John Cryan said: “We are pleased to have reached this agreement with Phoenix Group, a specialist life fund provider which is well qualified to serve Abbey Life policyholders.

“Deutsche Asset Management will continue to focus on its core businesses of Active, Passive and Alternatives, while this transaction will also strengthen Deutsche Bank’s capital position. We continue to build a simpler and better Deutsche Bank.”

Shore Capital upgraded Phoenix to ‘buy’ from ‘hold’ following the announcement of the deal, which it called “well-structured, neat and value-enhancing”.

“Indeed, this is the deal we have been waiting for, delivering ‘proof of concept’ for this management team and value for shareholders,” it said.

Shore said it has upgraded the stock on the prospect of a 58.75p dividend in 2017 and strong sustainable cash-flows for many years to come.

At 1012 BST, Phoenix shares were up 3.4% to 867p.