Standard Life said in a statement that the proposed deal would see its shareholders own 66.7% of the combined group while Aberdeen shareholders would have a 33.3% stake.
"Further to the recent press speculation the boards of Standard Life and Aberdeen confirm that they are in discussions in relation to a possible all-share merger", they said.
Aberdeen Asset Management is now valued at around £3.8 billion, and Standard Life is reportedly valued at about £7.5 billion.
In their joint statement, the companies said that Standard Life shareholders would own roughly two-thirds of the combined group, which they have yet to name. Aberdeen, hurt by weaker sentiment toward emerging markets, has suffered from more than three years of redemptions, leading Chief Executive Officer Martin Gilbert to cut costs to protect profitability and freeze salaries.
Mr Gilbert and Mr Skeoch would not be drawn on job losses but the businesses highlighted significant savings across technology and distribution in its case to shareholders - amounting to some £300m. "Given the headwinds faced by the asset management industry from passive investing, pricing and regulatory pressures, this looks like a defensive deal".
"The financial services sector and firms like Aberdeen Asset Management and Standard Life are vitally important to Scotland's economy", a Scottish government spokesperson said.
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Active managers have been trying to stop a tide of investors shifting money to low-priced, passive funds and have been cutting costs to maintain or boost profitability.
"Aberdeen has been struggling of late", said Laith Khalaf, a senior analyst at Hargreaves Lansdown Plc.
Standard Life, meanwhile, reported a £4.3bn net outflow from its flagship Global Absolute Return Strategies fund during 2016, while overall net inflows for its fund management business fell from £3.3bn in 2015 to £1.1bn. The companies have now confirmed that their respective boards are engaged in discussions and meant to continue their conversation despite the premature press coverage.
While cost-cutting after the merger threatens the loss of valuable financial sector jobs at a hard time for the Scottish economy, many in Scotland had already been concerned about the future of Aberdeen which fell out of the FTSE 100 a year ago.
Standard Life shares rose 21.5p to 400p on the news, easily holding the top spot on the FTSE 100, which ended the day down 0.3 per cent or 24.14 points at 7,350.12 points.