Market hails talk of Old Mutual US sale

Speculation that SA’s leading life assurer, Old Mutual , was considering the sale of its US life operations pushed its share price up more than 3,9% to R13,29 yesterday.

London-based Old Mutual had hired JPMorgan Chase to consider a sale of the US life business and several possible buyers had been found, the Financial Times said, citing unidentified people familiar with the situation.

Old Mutual spokesman Matthew Gregorowski said it could not comment as the group was in a closed trading period.

Stakeholders would be updated on strategy when results for the year to December 31 were released on March 11, he said.

Analysts said Old Mutual was expected to set out a streamlined structure prioritising profitable businesses that it would build over time, in a “directional” strategy statement that would probably include a commitment to sell unwanted units later on.

Analysts said Old Mutual’s US life insurance unit — seen as too small to compete — was likely to be earmarked for disposal.

“I think it’s a good idea to exit the US,” said Davy Corubolo, an analyst at Avior Research.

“It’s difficult for Old Mutual to achieve high profitability in that market.”

But regulatory and practical obstacles could deter Old Mutual from embracing more radical options, such as a sale of its majority stake in lender Nedbank , or a wholesale demerger of its businesses outside SA.

Selling Nedbank, SA’s fourth- biggest lender, could give Old Mutual a payday of about £2,5bn, while freeing the company to concentrate on insurance and asset management.

But the deal would need the approval of regulators, whose reluctance to let a bank fall into foreign hands may rule out the most likely buyers.

Exchange controls might prevent Old Mutual from taking the proceeds abroad.

“So far as we can tell, capital ex- SA is thin, and probably too thin,” said Tony Silverman, an analyst at S&P Equity Research in London.

“In principle, selling Nedbank and getting the money out would resolve the issue, but that’s unlikely.”

The alternative of selling Old Mutual’s overseas units — led by European life insurer Skandia and asset manager OMAM in the US — would allow the company to channel the cash from its South African operations toward building a presence in other faster-growing African markets.

But analysts said investor interest might be limited without the underpinning that Old Mutual’s rand cash flows provide to debt taken on by its London-based holding company.

Old Mutual is expected to shun radical break-up strategies in favour of a more gradual makeover when it unveils the revamp next month.

The company, a conglomerate with insurance, banking and fund management operations spanning 35 countries, is under pressure to slim down and refocus as investors fret its complexity is holding back its stock price.

“The owners of Old Mutual see a share price that is just not reflecting their value, and every day that passes while this continues is a problem,” one shareholder said.

Old Mutual stock on the JSE has lost 10% in the past five years, against a 45% gain for the JSE’s financial index, and an 85% rise for rival insurer Sanlam .

The share price closed 3,4% higher at R13,22 on the JSE yesterday.

Source: 20100222

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