UK Pension Market Sees Expansion with Mercer's Acquisition of Cardano

Key Takeaway

• Mercer, a subsidiary of Marsh McLennan, acquires pension manager Cardano, which oversees £50bn in assets and owns Now: Pensions.
• Noble Corp. acquires Diamond Offshore Drilling for $1.6 billion, enhancing its global deepwater drilling capabilities.
• Daiwa Securities increases its stake in Aozora Bank to 24%, betting on the bank's recovery and potential domestic lending growth.

Mercer Acquires Cardano

Consulting group Mercer, a subsidiary of US professional services company Marsh McLennan, has agreed to acquire pension manager Cardano. Cardano oversees more than £50bn in assets and offers liability-driven investment (LDI) strategies to help defined benefit retirement schemes meet their future payouts. The acquisition aims to expand Mercer’s presence in the UK workplace pension market, which has seen rising demand. The deal is expected to be announced as early as this afternoon, according to two people familiar with the situation.

Cardano, which operates in the UK and the Netherlands, owns Now: Pensions, a provider of workplace pension schemes. Notable clients include ride-hailing app Uber, which partnered with Now: Pensions in 2021 to offer pension pots to thousands of its drivers. “The growth is in Now: Pensions and the shift towards defined contribution schemes,” said one industry expert.

Benoit Hudon, Mercer’s UK president and chief executive, stated that the acquisition would “position Mercer as the pension provider of choice in the UK and the Netherlands.” Michaël De Lathauwer, chief executive of Cardano, noted that the two companies “share an aligned culture” and that Cardano would benefit from Mercer’s scale and resources.

Impact of UK Pension Reforms

The UK’s auto-enrolment rules, introduced in 2012, require employers to automatically enroll eligible employees into workplace pension schemes. Employers must contribute at least 3% of the pensionable salary, while employees contribute at least 5%. Since the introduction of these rules, over 11 million workers have been enrolled in employer-sponsored pension schemes, with about one in ten opting out.

The UK government had considered lowering the auto-enrolment age to 18 and removing the limit on the portion of salary eligible for pension contributions. However, these reforms have stalled in recent months. Mercer’s acquisition of Cardano comes in the wake of former UK Prime Minister Liz Truss’s “mini” Budget in September 2022, which caused the value of gilts to plummet. This event significantly impacted providers of LDI strategies, including pension consultants heavily exposed to long-dated bonds.

Noble Acquires Diamond Offshore

Noble Corp., the world’s largest offshore oil-rig contractor by market value, has agreed to acquire its smaller rival Diamond Offshore Drilling Inc. in a deal valued at $1.6 billion. Diamond stockholders will receive 0.2316 shares of Noble plus $5.65 for each share they own, representing an 11.4% premium based on the June 7 closing price. Upon completion, Diamond shareholders will own about 14.5% of Noble’s outstanding shares.

Noble shares rose 1.5% in early trading, while Diamond shares increased by 10%. Noble CEO Robert Eifler stated, “Really what this does is it gives the combined company better scale and a better ability to serve customers on a global basis.” The acquisition aligns with Noble’s strategy to target the largest offshore oil contractors globally, particularly in deepwater drilling.

The combined company will have the largest selection of top-tier drillships equipped with blowout preventers, essential for drilling in deep waters. Noble will fund the cash portion of the deal through a $600 million bridge loan and plans to expand its board to include one member from Diamond. The company also announced a 25% increase in its quarterly dividend to $0.50 per share, starting in the third quarter.

Daiwa Securities Increases Stake in Aozora Bank

Daiwa Securities Group Inc. announced it will increase its stake in Japan’s Aozora Bank Ltd. by purchasing 9.1% of the bank from City Index Eleventh, a fund linked to activist investor Yoshiaki Murakami and his daughter, Aya Nomura. Combined with an earlier agreement, this purchase will give Daiwa a 24% stake in Aozora, Japan’s worst-performing major bank stock.

Aozora has struggled to recover from a failed venture into the US commercial property market, which resulted in its first loss in 15 years. “Unless Aozora revives itself very quickly, it would be difficult to persuade the market to more positively view this investment,” said Hideyasu Ban, a Bloomberg Intelligence analyst.

Daiwa and Aozora plan to collaborate in wealth management, real estate, mergers and acquisitions, and startups. The investment is a bet on Aozora’s recovery and the potential for increased domestic lending income following the end of negative interest rates by the Bank of Japan. Daiwa will pay 2,415.5 yen per share, making the total investment approximately 27.9 billion yen ($177 million). Daiwa’s shares fell 4.6% to 1,254.5 yen, while Aozora shares gained 1% to 2,402.5 yen.

Management Quotes

• Benoit Hudon, UK President and CEO of Mercer:

  "The deal would position Mercer as the pension provider of choice in the UK and the Netherlands."

• Michaël De Lathauwer, CEO of Cardano:

  "The two companies share an aligned culture. Cardano would benefit from Mercer’s scale and resources."