Standard Life: floating on choppy waters INSIDE STORY:

Sunday Herald, The, Jun 18, 2006 by Ken Symon Business Editor

IT was all a matter of timing. Sir Brian Stewart had squeezed the trigger on the klaxon to sound the launch of the Standard Life share prospectus.

But there seemed an interminable pause as the chairman, with chief executive Sandy Crombie standing beside him on the seventh- floor balcony of the insurer's building, waited for action from the grounds of Edinburgh Castle in the distance.

Then from the castle grounds there began to rise into the air 5000 balloons decked out in the blue and yellow colours of the Standard Life logo.

But if that launch seemed slow to take off, the Standard Life team led by Stewart and Crombie will hope that things will go a a lot more smoothly when what is currently Europe's largest mutual insurer floats on the stock market on July 10.

And a smooth launch of the "good ship Standard Life" looks quite a tall order amid the choppy waters that are the current stock markets.

In fact, some observers have doubted whether the ship would sail at all.

After all, a lot of other floats have been pulled given the volatility of market conditions.

But unlike lesser "craft" the Standard Life is an ocean-going liner - or a "juggernaut" as Stewart called it the other day. So it is less easy to blow off course, or to put it another way there are lots of institutional investors who - if they are convinced of the company's gloss on things - will want a slice of such a large and juicy piece of the action.

Standard Life should be the biggest float on the London Stock Exchange for five years.

Which way the institutions will go will depend to a large extent on the more than 100 presentations to potential investors that Crombie and his team will give in the coming three weeks.

The company is mindful of the fact that, in many cases, any decision the institutions make on whether to buy shares in the company will be accompanied by a parallel one as to which other shares in the insurance sector they need to sell at the same time.

Crombie says: "The way this range has been set has been to place us at a discount to the nearest equivalent companies, rather than a discount to our embedded value, given that our financial performance is still improving."

He adds: "Policyholders are smart.

They know markets can go up and down and will see this as a real opportunity to go for it."

But will they be happy to go for it and will they be happy for the current team at Standard Life to lead it?

The key for Standard Life has been setting the share price at a level to attract investors but not at such a low one that a competitor might come in with a bid to snap the company up.

Stewart said that he hoped about 80per cent of the shares would be taken up by Standard Life members, customers and employees, which would leave 20per cent for the institutional shareholders.

For the board's plan to be a success, the company will need to receive this kind of take-up and people will need to hold on to them.

It may just achieve that goal. As Richard Hunter, head of equities with financial adviser Hargreaves Lansdown put it, the market consensus was for a "hold" on the shares.

He says: "If you can afford to put the shares in the bottom drawer for a year then you are getting something for nothing with the bonus."

And Jim Wood Smith, head of research says of the launch: "Standard Life has sensibly given itself the option of cutting its flotation price if the volatile stock market dampens investors' interest.

However, the potential pricing range of 210p-270p is still very wide and is only marginally below the original indication of 240p- 290p. The likelihood is still that demand for the shares will be high and policyholders ought still to see a good paper profit as compensation for handing over ownership of the business."

One issue is that, as the float goes ahead, Sir Brian Stewart, who is already chairman of the listed brewer Scottish & Newcastle, will be the chairman of two FTSE companies which, as the prospectus admits, is against the combined code on corporate governance.

The Prospectus says that: "The board has reviewed and considered the chairman's commitments and is satisfied that he has sufficient time to devote to his position as chairman of Standard Life.

"The board has asked Sir Brian Stewart to continue as chairman until the company is fully established as a public listed company and this he has agreed to do.

The board will put in place a process to appoint a successor, which will be consistent with best practice in corporate governance, at the appropriate time."

It is likely that Gerry Grimstone, 56, who was appointed as deputy chairman in March, will be Stewart's successor. A source close to the company said that Grimstone was well respected in the City.

Grimstone is chairman of Candover Investments and the F&C Global Smaller Companies and a non-executive director of Dairy Crest Group.

But the bigger question is still over Crombie and the other members of the "City charm offensive" team. They are:

finance director Alison Reed; life and pensions chief executive Trevor Matthews;