Statement re Merger Benefits

Standard Life plc
02 November 2007



  Not for release, publication or distribution, in whole or in part, in or into
  any jurisdiction where to do so would constitute a violation of the relevant
                            laws of that jurisdiction 

                                                           Date: 2 November 2007

                                                                                

  STANDARD LIFE PLC ('STANDARD LIFE') OFFER FOR RESOLUTION PLC ('RESOLUTION')   

                          STATEMENT ON MERGER BENEFITS                          


Further to the announcement made by Standard Life on 26 October 2007 in
connection with Resolution (the 'Offer Announcement'), Standard Life confirms
all of the merger benefits referred to in the Offer Announcement and is giving
further details of the sources and bases of preparation of these merger benefits
to enable Resolution shareholders to see and fully understand the value of its
offer.
 

Sandy Crombie, Chief Executive of Standard Life, commented:

'Last Friday we announced an offer for Resolution which we believe would provide
compelling value for both our shareholders and theirs. We believe these further
details we are announcing today underline the attractions of our offer'.


Terms used but not defined in this announcement shall have the same meanings
given to them in the Offer Announcement.
 

SECTION I

SUMMARY OF COST AND FINANCIAL SYNERGIES

As announced in the Offer Announcement, Standard Life has identified a number of
areas of synergies from the integration of the Resolution assets to be acquired
by Standard Life and retained by Standard Life (following the exercise of
options granted over certain Resolution assets to Swiss Re (the 'Disposal')).

The Board of Standard Life is targeting at least £71 million in annualised
pre-tax cost and financial synergies by the end of 2010 arising primarily from
the following areas:

•  £35 million annual cost savings from the integration of Resolution's asset 
   management function onto Standard Life's platform;

•  £18 million annual cost savings from de-duplication of group head office 
   costs and rationalisation of UK Life & Pensions head office and support
   functions arising from the integration of the life operations to be retained 
   by Standard Life following the Disposal; and

•  financial synergies of £18 million per annum reflecting the enhanced value of
   new business.

15% of the annualised cost and financial synergies are expected to be achieved
in 2008, 75% in 2009 and 100% in 2010. The estimated pre-tax one-off costs of
achieving the cost synergies are expected to be approximately £82 million,
comprising approximately £65 million in 2008 and approximately £17 million in
2009.

The Board of Standard Life considers that these savings have been conservatively
estimated and are confident that they will be delivered. An implementation plan
is in place.

In addition to the benefits outlined above, the Board of Standard Life believes
that Standard Life would be able to realise financial benefits at least
equivalent to the anticipated £250 million benefit arising from the hitherto
proposed merger of Resolution's Life Division North and Life Division South in
2008, as announced by Resolution on 10 September 2007, through merging the
acquired businesses into certain life funds in the Standard Life Group.
 

SECTION II

SOURCES AND BASES OF COST AND FINANCIAL SYNERGIES

Background to the proposed cost and financial synergies

Standard Life's head office will continue to be in Edinburgh and it intends to
operate certain group functions from London. Resolution's head office in London
will be retained as a corporate office of the Enlarged Group. It is expected
that the Enlarged Group will be structured into a number of operational
divisions. The UK Financial Services Business, which comprises Standard Life's
life and pensions, healthcare and banking divisions, will be extended to include
Resolution's new business division and in-force business. Resolution's and
Standard Life's asset management operations will be integrated and managed as a
single entity.

As set out in the Offer Announcement, following the acquisition of Resolution
and the associated Disposal, Standard Life will retain the following Resolution
businesses and assets:

•  Resolution Asset Management. £50 billion of the assets under management out 
   of the £57 billion managed by Resolution as at 30 June 2007 will be retained
   by Standard Life after the Disposal, including £24 billion under a 10 year
   investment management agreement with Swiss Re;

•  Almost all of Resolution's new business capability, and access to Abbey's 
   nationwide network of branches. Standard Life will also retain Resolution's 
   65 strong Abbey broker consultant business; and

   -  Life Division North, which includes:

   -  Scottish Provident;

   -  Scottish Mutual Assurance;

   -  Phoenix Life Assurance;

   -  Scottish Mutual International; and

   -  Scottish Provident International.


Please refer to the Offer Announcement for a fuller description of the
arrangements in respect of the Disposal. Any synergies described in this
document refer only to synergies pertaining to Standard Life after the Disposal.

The estimated synergies will be achieved through the following initiatives:

Asset Management

Cost savings in asset management are expected to be achieved through integration
of Resolution's asset management function onto Standard Life's asset management
platform. Substantial overlap in investment capabilities, funds, products and
distribution channels exist which gives the opportunity to:

•  Amalgamate Resolution funds, to the extent practicable, with the equivalent 
   Standard Life and Standard Life Investments funds;

•  Rationalise the resultant combined fund structures for optimal efficiency and
   flexibility;

•  Transition the remaining clients and portfolios onto the combined platform; 
   and

•  Integrate the rest of Resolution Asset Management, including sales, marketing
   and investment functions within Standard Life's operations.

The resultant combined operation will be well positioned for further growth
opportunities.

Head office and UK Life and Pensions

Cost savings are expected to be achieved through creating a single group
management structure and head office function, principally:

•  Creation of an Enlarged Group head office function, including:

   -  Single Board and management team; and

   -  De-duplication of certain group functions.

•  Rationalisation of UK Life & Pensions head office and other support 
   functions, arising from the integration of the operations to be retained by
   Standard Life, including:

   -  Combined finance and governance functions; and

   -  Efficiencies in sales and marketing.


Financial synergies

Synergies have been identified which relate to the ability for Standard Life to
write Resolution's new business, post completion, in one of the life funds in
the Standard Life group which has excess taxable income thereby enabling full
and immediate tax relief to be obtained in respect of new business expenses.
 

Basis of Preparation

The estimate of total cost savings and financial synergies has been reported on
under the City Code on Takeovers and Mergers by PricewaterhouseCoopers LLP and
by Standard Life's financial advisers, Merrill Lynch International and UBS
Limited. Copies of a letter from PricewaterhouseCoopers LLP and a letter from
Merrill Lynch International and UBS Limited are set out in Appendix I.

As set out above, any synergies described in this document refer only to
synergies pertaining to Standard Life after the Disposal. In order to derive the
estimated cost savings, Standard Life has made certain assumptions regarding the
split of the UK Life & Pensions and head office cost base between Resolution's
Life Division North and Life Division South. The assumptions in respect of the
allocation of costs between Life Division North and Life Division South have
been based upon high level cost information provided by Resolution.

The estimates of cost savings achievable in asset management, head office and UK
Life & Pensions have been derived from an analysis of Resolution's current and
projected cost base and headcount, based on business plans provided by
Resolution. Due to the complexity of Resolution's historical financial track
record, the projected cost base has been used for the purposes of estimating
cost savings as it reflects the forecast cost base, after taking account of
previously announced Resolution synergies, for the current Resolution group
structure. In determining the cost savings, Standard Life's management have
identified areas of overlap between Standard Life and Resolution's existing
functions.

The above cost synergies have been determined after allowing for the full
implementation of Standard Life's and Resolution's previously announced cost
savings programmes:

•  At the time of its IPO, Standard Life announced a Life & Pensions expense 
   reduction of £30 million and corporate cost reduction of £16 million per
   annum by 2007;

•  Standard Life also announced £100 million of underlying annual cost savings 
   in its preliminary results announcement of 22 March 2007; and

•  Resolution announced £17 million of pre-tax annual synergies at the time of 
   its acquisition of the former Abbey life companies, which completed in August
   2006.

These synergies also exclude the £20 million of expected pre-tax annual cost
savings relating to Resolution's merger with Britannic, which completed in
September 2005 and which relate to the businesses to be acquired by Swiss Re.

Asset management

Asset management synergies have been calculated by reference to the 2007
forecast cost base of Resolution Asset Management, which was compared to actual
costs in the first six months of 2007. The level of synergies has been assessed
assuming that all of the assets under management of Resolution, except for
certain assets to be sold to Swiss Re, are transitioned to Standard Life's
investment management platform.


Head office and UK Life & Pensions

In order to derive the estimated cost savings in head office and UK Life and
Pensions, Standard Life has analysed the projected 2009 cost base of
Resolution's Life and Pensions business, which has also been compared to the
actual reported cost base for the full year ended 31 December 2006 and the half
year ended 30 June 2007. Standard Life's management considers the 2009 projected
cost base of Resolution as the most appropriate basis for assessing savings from
the combination, since it is lower than the 2007 projected cost base due to its
allowance in full for cost savings that Resolution expects to achieve from
previous acquisitions and initiatives.

The estimate of de-duplication cost savings derives from savings identified and
realisable within Resolution's cost base, though Standard Life's management
expects, in practice, to realise these savings across the Enlarged Group.

 
Financial synergies

The financial synergies in respect of the enhanced value of new business have
been calculated on the basis that excess taxable income exists in Standard Life
such that expenses in respect of Resolution new business written in Standard
Life companies, rather than Resolution, which would otherwise not be available
for relief from tax, will become relievable. Standard Life's assessment of the
financial synergies has been based upon information provided by Resolution and
discussions with Resolution management.


Costs of achieving synergies

Estimated costs of achieving the cost synergies have been prepared based upon
information provided by Resolution and on analysis prepared by Standard Life.
Estimated costs include the costs of rationalising functions as well as costs of
investment in systems and processes to achieve merged functions across the
Enlarged Group.

 
Additional financial synergies of £250 million

Standard Life's management have made an assessment that, in their belief,
Standard Life would be able to achieve financial benefits at least equivalent to
the anticipated one-off uplift in EEV of £250 million previously announced by
Resolution in respect of the proposed merger of Resolution's Life Division North
and Life Division South. The expectation of the ability to achieve benefits
through merging the acquired Life Division North business into certain funds in
the Standard Life Group and the ability to achieve other financial benefits
arising from the acquisition and integration of Resolution companies into the
Standard Life Group has been based on information provided by Resolution in
respect of the components of the anticipated £250 million benefit and comparison
of the attributes of the Life Division North and Life Division South entities
(which attributes underlie the anticipated £250 million benefit previously
announced by Resolution) with those of Standard Life's own funds as well as
analysis of other financial benefits based upon information provided by
Resolution.

The key assumptions on which this statement has been based are that:

•  FSA and Court approvals are obtained for the transfer of the life insurance 
   funds of Scottish Mutual Assurance Limited, Scottish Provident Limited and 
   Phoenix Life Assurance Limited to a Standard Life entity under Part VII of
   the Financial Services and Markets Act 2000;

•  The Part VII transfer occurs by 31 December 2008;

•  The standard rate of corporation tax is 28%; and

•  That the ability to achieve financial synergies is not impaired by the
   taxation changes announced in the pre Budget report on 9 October 2007 (see 
   note 2 below).

 

Notes
 

1.  The estimated cost savings in this announcement should not be interpreted as
    meaning that the earnings per share of the Enlarged Group for the current or
    future financial years will necessarily match or exceed the historical 
    published earnings per share of Resolution. Nothing in this announcement 
    should be interpreted to mean that Standard Life's future EEV operating 
    earnings per share will necessarily match or exceed the historical EEV
    operating earnings per share of Standard Life.

2.  Taxation changes announced in the Pre Budget Report on 9 October 2007 affect
    the manner in which life insurance companies can treat expenses relating to 
    reinsurance, with the effect that, from 9 October 2007, insurers are unable
    to obtain tax relief on expenses where they have not borne the economic cost
    of those expenses. These changes could affect the ability to achieve the 
    proposed financial synergies from a merger between Standard Life and 
    Resolution. Standard Life's management are satisfied that the business can 
    be restructured to maintain tax relief for expenses at the level assumed in 
    the proposed financial synergy.

3.  Resolution entered into an outsourcing agreement with Capita in May 2007, 
    from which Resolution management expected to deliver an average of £20 
    million pre-tax cost benefits from 2010. It has been assumed that this 
    contract will remain in place following the Completion of the Transactions 
    in respect of the Life Division South business and the Life Division North 
    operations being retained by Standard Life. The cost savings in UK Life & 
    Pensions assume that the financial terms of the contract with Capita 
    continue in respect of the operations being retained by Standard Life. As 
    such, the estimated cost savings do not allow for any adverse impact 
    resulting from any changes to the contract that may result from the change 
    of control of Resolution and a potential separation of the contract.

4.  Standard Life's estimate of cost and financial synergies does not include 
    the expected increase in value of new business arising from the acquisition 
    of Abbey's broker consultant business, as announced by Resolution on 10 
    September 2007 and completed on 28 September 2007.

5.  Standard Life's estimate of annual financial synergies is independent of the
    £250 million benefit arising from the hitherto proposed merger of 
    Resolution's Life Division North and Life Division South in 2008 as 
    announced by Resolution on 10 September 2007.

6.  The Board of Standard Life has not had detailed discussions with 
    Resolution's management regarding the reasonableness of their assumptions
    supporting the estimate of cost savings. Therefore there remain inherent 
    risks in this forward-looking estimate, including the risk that actual costs
    differ materially from those forecast by Resolution management, as used by 
    Standard Life in the preparation of its synergy assessment.

7.  Due to the scale of the combined Standard Life and Resolution organisation, 
    there may be additional changes to the Enlarged Group's operations. In 
    addition, there are several material assumptions underpinning the estimates,
    including the allocation of Resolution costs between Life Division North and
    Life Division South and the level of costs necessary to operate each 
    combined function or activity. Because of these factors and the fact that 
    the changes relate to the future, the resulting cost savings may be 
    materially greater or less than those estimated.

8.  In arriving at the estimate of cost and financial synergies set out in this 
    announcement, the Directors of Standard Life have assumed that there will be
    no significant impact on the business of the Enlarged Group arising from any
    decisions made by competition authorities and regulatory bodies.


Dealing disclosure requirements

Under the provisions of Rule 8.3 of the City Code, if any person is, or becomes,
'interested' (directly or indirectly) in 1 per cent. or more of any class of
'relevant securities' of Standard Life or Resolution, all 'dealings' in any
'relevant securities' of that company (including by means of an option in
respect of, or a derivative referenced to, any such 'relevant securities') must
be publicly disclosed by no later than 3.30 p.m. (London time) on the London
business day following the date of the relevant transaction. This requirement
will continue until the Scheme becomes Effective, lapses or is otherwise
withdrawn or on which the 'offer period' otherwise ends (or if the Acquisition
is implemented by way of an offer, until the date on which such offer becomes,
or is declared, unconditional as to acceptances, lapses or is otherwise
withdrawn or on which the 'offer period' otherwise ends). If two or more persons
act together pursuant to an agreement or understanding, whether formal or
informal, to acquire an 'interest' in 'relevant securities' of Standard Life or
Resolution, they will be deemed to be a single person for the purpose of Rule
8.3.

Under the provisions of Rule 8.1 of the City Code, all 'dealings' in 'relevant
securities' of Resolution or Standard Life by Standard Life or Resolution, or by
any of their respective 'associates', must be disclosed by no later than 12.00
noon (London time) on the London business day following the date of the relevant
transaction.

A disclosure table, giving details of the companies in whose 'relevant
securities' 'dealings' should be disclosed, and the number of such securities in
issue, can be found on the Panel's website at www.thetakeoverpanel.org.uk.

'Interests in securities' arise, in summary, when a person has long economic
exposure, whether conditional or absolute, to changes in the price of
securities. In particular, a person will be treated as having an 'interest' by
virtue of the ownership or control of securities, or by virtue of any option in
respect of, or derivative referenced to, securities.

Terms in quotation marks are defined in the City Code, which can also be found
on the Panel's website. If you are in any doubt as to whether or not you are
required to disclose a 'dealing' under Rule 8, you should consult the Panel.

Forward looking statements

This announcement may contain forwardlooking statements that are based on
current expectations or beliefs, as well as assumptions about future events.
Generally, the words 'will', 'may', 'should', 'continue', 'believes', 'expects',
'intends', 'anticipates' or similar expressions identify forward-looking
statements. These statements are based on the current expectations of management
and are naturally subject to risks, uncertainties and changes in circumstances.
Undue reliance should not be placed on any such statements because, by their
very nature, they are subject to known and unknown risks and uncertainties and
can be affected by other factors that could cause actual results, and
management's plans and objectives, to differ materially from those expressed or
implied in the forward looking statements.

There are several factors which could cause actual results to differ materially
from those expressed or implied in forward looking statements. Among the factors
that could cause actual results to differ materially from those described in the
forward looking statements are the ability to combine successfully the
businesses of Standard Life and Resolution and to realise expected synergies
from that combination, changes in the global, political, economic, business,
competitive, market and regulatory forces, future exchange and interest rates,
changes in tax rates and future business combinations or dispositions.

Standard Life does not undertake any obligation (except as required by the
Listing Rules, the Disclosure and Transparency Rules and the rules of the London
Stock Exchange) to revise or update any forward looking statement contained in
this announcement, regardless of whether that statement is affected as a result
of new information, future events or otherwise.

Overseas jurisdictions

The release, publication or distribution of this announcement in jurisdictions
other than the United Kingdom may be restricted by law and, therefore, any
persons who are subject to the laws of any jurisdiction other than the United
Kingdom should inform themselves about, and observe, any applicable
requirements. This announcement has been prepared for the purposes of complying
with English law, the City Code and the Listing Rules and the information
disclosed may not be the same as that which would have been disclosed if this
announcement had been prepared in accordance with the laws and regulations of
any jurisdiction outside of England.

This announcement is not intended to, and does not constitute, or form part of,
an offer to sell, purchase, exchange or subscribe for or a solicitation of an
offer to sell, purchase or exchange any securities or a solicitation of any vote
or approval in any jurisdiction. This announcement does not constitute a
prospectus or a prospectus equivalent document.


APPENDIX I

 

 
The Directors                                PricewaterhouseCoopers LLP
Standard Life plc                                    1 Embankment Place
Standard Life House                                     London WC2N 6RH
30 Lothian Road                                                        
Edinburgh                                                              
EH1 2DH                                                                

Merrill Lynch International
Merrill Lynch Financial Centre
2 King Edward Street
London
EC1A 1HQ

UBS Limited
1 Finsbury Avenue
London
EC2M 2PP
 

2 November 2007
 

Dear Sirs

Standard Life plc offer for Resolution plc

We refer to the statement regarding the estimated cost and financial synergies
(the 'Statement') made by the directors of Standard Life plc (the 'Directors')
set out in Section I of the announcement issued on 2 November 2007 in connection
with the offer for Resolution plc and associated disposal of certain Resolution
assets to Swiss Reinsurance Company (the 'Transactions').

The Statement has been made in the context of the disclosures in Section II of
the announcement setting out, inter alia, the Directors' bases of belief
(including sources of information) supporting the Statement and their analysis
and explanation of the underlying constituent elements.

This report is required by Note 8 on Rule 19.1 of the City Code on Takeovers and
Mergers (the 'City Code') and is given for the purpose of complying with that
requirement and for no other purpose.

Responsibility

The Statement is the responsibility of the Directors. It is our responsibility
and that of Merrill Lynch International and UBS Limited (together, the
'Financial Advisers') to form our respective opinions, as required by Note 8(b)
on Rule 19.1 of the City Code, as to whether the Statement has been made by the
Directors with due care and consideration.

Save for any responsibility which we may have to those persons to whom this
report is expressly addressed, to the fullest extent permitted by law, we do not
assume any responsibility, and will not accept any liability, to any other
person for any loss suffered by any such person as a result of, arising out of,
or in connection with this report.

Basis of opinion

We conducted our work in accordance with the Standard for Investment Reporting
1000 (Investment Reporting Standards applicable to all engagements in connection
with an investment circular) issued by the Auditing Practices Board.

We have discussed the Statement together with the relevant bases of belief
(including sources of information) with the Directors and the Financial
Advisers. We have also considered the letter dated 2 November 2007 from the
Financial Advisers to the Directors on the Statement. Our work did not involve
any independent examination of any of the financial or other information
underlying the Statement.

We do not express an opinion as to the achievability of the cost and financial
synergies as set out in the Statement. The Statement is subject to uncertainty
as described in Section II of the announcement. Because of the significant
changes in the enlarged group's operations expected to flow from the
Transactions and because the Statement relates to the future, the actual cost
savings and financial synergies achieved are likely to be different from those
anticipated in the Statement and the differences may be material.

Our work has not been carried out in accordance with auditing standards
generally accepted in the United States of America or auditing standards of the
Public Company Accounting Oversight Board (United States) and accordingly should
not be relied upon as if it had been carried out in accordance with those
standards.

Opinion

In our opinion the Directors have made the Statement, in the form and context in
which it is made, with due care and consideration.

Yours faithfully

 

 
PricewaterhouseCoopers LLP
Chartered Accountants




 
Merrill Lynch International                                 UBS Limited
Merrill Lynch Financial Centre                        1 Finsbury Avenue
2 King Edward Street                                             London
London                                                         EC2M 2PP
EC1A 1HQ                                                               


2 November 2007

 
The Directors
Standard Life plc
Standard Life House
30 Lothian Road
Edinburgh
EH1 2DH



Dear Sirs

Standard Life plc offer for Resolution plc

Merrill Lynch International and UBS Limited (together, 'we') refer to the
statement regarding the estimated cost and financial synergies made by the
directors of Standard Life plc (the 'Statement') set out in the announcement
issued on 2 November 2007 in connection with the offer for Resolution plc and
associated disposal of certain Resolution assets to Swiss Reinsurance Company
(the 'Transactions'), announced on 26 October 2007, and the bases of preparation
thereof and the notes thereto, for which the Directors of Standard Life plc are
solely responsible.

We have discussed the Statement, including the relevant bases of belief
(including the assumptions and sources of information summarised in Section II
of the Statement), with the Directors of Standard Life plc and those officers
and employees of Standard Life plc and its subsidiaries who developed the
estimated cost savings and financial synergies.

We have relied upon the financial and other information reviewed by us being
accurate and complete (in each case in all material respects) and have assumed
such accuracy and completeness for the purposes of this letter. In giving the
confirmation set out in this letter, we have reviewed the work carried out by
PricewaterhouseCoopers LLP and have discussed with them the conclusions stated
in their letter dated 2 November 2007.

We do not express any opinion as to the achievability of the cost savings and
financial synergies as estimated by Standard Life plc. The Statement is subject
to uncertainty as described in Section II of the Statement and our work did not
involve any independent examination of any of the financial or other information
underlying the Statement. Because of the significant changes in the enlarged
group's operations expected to flow from the Transactions and because the
Statement relates to the future, the actual cost savings and financial synergies
achieved are likely to be different from those anticipated in the Statement and
the differences may be material.

On the bases of the foregoing, each of us considers that the Statement has been
made with due care and consideration in the form and context in which it is
made.

This letter is provided pursuant to our respective engagement letters with
Standard Life plc solely to the Directors of Standard Life plc for the purposes
of reporting to Standard Life plc under Note 8(b) to Rule 19.1 of the City Code
on Takeovers and Mergers and for no other purpose. We accept no responsibility
to Resolution plc or to its or Standard Life plc's shareholders or any other
person, other than the Directors of Standard Life plc, in respect of the
contents of, or any matter arising out of or in connection with, this letter.

Yours faithfully,
 

For Merrill Lynch International     For UBS Limited                    
                                                                       
Henrietta Baldock                   Ian Gladman                        
Managing Director                   Managing Director                  
                                                                       
                                    Tim Waddell                        
                                    Managing Director                  





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