Old Mutual eyes US$850m deal to sell M&F stake

LONDON – Old Mutual, South Africa’s largest insurer, is in talks to sell a majority stake in Mutual & Federal to Royal Bafokeng Holdings, pushing on with efforts to simplify its structure and focus on asset management.

Old Mutual, which has just under 75 per cent of M&F, said the indicative offer from the investor group for a 60 to 70 per cent stake was worth 27,5 rand a share, below Wednesday’s close. At that price, the deal would value 70 per cent in Old Mutual’s only general insurance asset at roughly 5,6 billion rand – a small deal for the group, but one analysts said could prove a positive catalyst for its shares.The deal to cut the stake in M&F is part of a broader effort to streamline Old Mutual assets and woo back investors put off by its complex structure.Analysts agreed the sale – and the further share buyback if the deal goes through – could help boost Old Mutual shares, which trade at one of the UK-listed sector’s lowest multiples.”It’s a bit of a conglomerate, which makes it difficult to analyse …taking the opportunity to simplify the group is a good thing,” analyst Marcus Barnard at Pali International said.”Focusing the business down into fewer lines of activity would probably be a good thing.I’d say bring on the sale of Nedbank, there’s no reason for it to reside in the group.”Old Mutual owns a controlling stake in Nedbank but said again yesterday it is not for sale.”I don’t think you can read across from M&F into Nedbank,” Chief Executive Jim Sutcliffe told analysts.But some analysts questioned the sale of a profitable asset amid investor pressure over its South African exposure.It bought Sweden’s Skandia last year in part to diversify away from South Africa.At 27,5 rand per share, the indicative offer is below M&F’s closing price of 28,95 rand on Wednesday, though at a five per cent premium to the 30-day average price up to the end of last week.M&F shares were down 6,7 per cent at 27 rand at 1204 GMT on Thursday.Old Mutual’s London shares dipped 0,1 per cent in a negative market, outperforming a 1,5 per cent drop in the DJ Stoxx index for European-listed insurers.Cash from the deal – through which Old Mutual would still retain a small stake in M&F as a financial investment – could be returned to shareholders, adding to the group’s first-ever share buyback which began last month, Sutcliffe said.”We have had (only) very preliminary discussions with the exchange control authorities, so we are not in a position to give any certainty on that at the moment, but you can see from our pattern…that when we haven’t got anything to invest in we certainly aim to give it back to shareholders,” he said.He denied the proposed price for M&F was too low.The sale will be at 2,1 times net asset value, above the 1,2 times it paid for Royal & SunAlliance’s stake in M&F three years ago.Nampa-ReutersAt that price, the deal would value 70 per cent in Old Mutual’s only general insurance asset at roughly 5,6 billion rand – a small deal for the group, but one analysts said could prove a positive catalyst for its shares.The deal to cut the stake in M&F is part of a broader effort to streamline Old Mutual assets and woo back investors put off by its complex structure.Analysts agreed the sale – and the further share buyback if the deal goes through – could help boost Old Mutual shares, which trade at one of the UK-listed sector’s lowest multiples.”It’s a bit of a conglomerate, which makes it difficult to analyse …taking the opportunity to simplify the group is a good thing,” analyst Marcus Barnard at Pali International said.”Focusing the business down into fewer lines of activity would probably be a good thing.I’d say bring on the sale of Nedbank, there’s no reason for it to reside in the group.”Old Mutual owns a controlling stake in Nedbank but said again yesterday it is not for sale.”I don’t think you can read across from M&F into Nedbank,” Chief Executive Jim Sutcliffe told analysts.But some analysts questioned the sale of a profitable asset amid investor pressure over its South African exposure.It bought Sweden’s Skandia last year in part to diversify away from South Africa.At 27,5 rand per share, the indicative offer is below M&F’s closing price of 28,95 rand on Wednesday, though at a five per cent premium to the 30-day average price up to the end of last week.M&F shares were down 6,7 per cent at 27 rand at 1204 GMT on Thursday.Old Mutual’s London shares dipped 0,1 per cent in a negative market, outperforming a 1,5 per cent drop in the DJ Stoxx index for European-listed insurers.Cash from the deal – through which Old Mutual would still retain a small stake in M&F as a financial investment – could be returned to shareholders, adding to the group’s first-ever share buyback which began last month, Sutcliffe said.”We have had (only) very preliminary discussions with the exchange control authorities, so we are not in a position to give any certainty on that at the moment, but you can see from our pattern…that when we haven’t got anything to invest in we certainly aim to give it back to shareholders,” he said.He denied the proposed price for M&F was too low.The sale will be at 2,1 times net asset value, above the 1,2 times it paid for Royal & SunAlliance’s stake in M&F three years ago.Nampa-Reuters