Money and Markets

The 4 stages of a break-up: Old Mutual’s move from international playboy to devoted African business

Business Insider SA
Old Mutual's head office is moving back to Pinelands, Cape Town.
  • Old Mutual is going through a break-up: it has split off different businesses to create value and save money.
  • Its African business was listed on the JSE on Tuesday.
  • The company still needs to complete the final stage of its new strategy.

Since its founding in 1845 as a life insurance company in Cape Town, Old Mutual has seen many changes.

The biggest came in 1999, when it became a private company and demutualised, which landed more than three million policyholders free shares in Old Mutual.

Shortly thereafter, the company moved its head office to London and embarked on realising its ambition to become a global giant. It started buying international companies, including Boston-based United Asset Management for $1.4 billion in 2000 and most notably (and disastrously), the Swedish insurer Skandia in 2005. Old Mutual paid R38 billion for the company – more than what its competitor Sanlam was worth at the time. It is now accepted that it overpaid for Skandia, which has added massively to its debt burden.

It has since sold off or rebranded bits of Skandia, as well as some of its other international holdings in India and Latin America.

Its global misadventures took a heavy toll on the company. Shares in Sanlam, which remained focused on its home market, have yielded almost 2,000% in the past twenty years – while Old Mutual returned only 480%, according to Bloomberg calculations.

The company wanted to put its international strategy behind it, and focus on Africa. In 2016, it adopted a new plan, that should also help to ease its debt and cut costs, especially by moving its head office back to Cape Town.

But the biggest reason for breaking up the company is to make sure that markets place a more accurate value on each of its businesses.

Old Mutual consisted of four parts: a US asset manager, a British wealth manager, an African business; and Nedbank (of which it owns 54%). Management believed the market didn’t value each asset highly enough, and that it would unlock value if the company split all of it up.

Accordingly, it embarked on a break-up. Here are the four stages:

Stage 1: Selling its US business.

Old Mutual has sold its majority holding in Old Mutual Asset Management in the US for $446 million. It now owns only 5% of this business.

Stage 2: Stepping away from its UK business.

It has separated from its financial advice, planning and investment business in the UK. That business, now called Quilter (named after one of its subsidiaries), was listed on the JSE and in London on Monday. All of Old Mutual’s shareholders received shares in Quilter.

Stage 3: Listing Old Mutual Limited.

The company primarily consists of all of the old Old Mutual's African businesses, including life insurance, asset management, and banking. Five billions shares in the company listed on the JSE and the London bourse on Tuesday, as well as in Malawi, Namibia, and Zimbabwe.

Stage 4: Unbundling Nedbank.

Old Mutual Limited still owns some 54% in Nedbank, but most of its shares will be transferred to Old Mutual shareholders in the next six months. Old Mutual only wants to keep 19.9% of the bank.

So far, the managed separation is seemingly going smoothly, Bright Khumalo, portfolio manager at Vestact Asset Management, told Business Insider SA.

Quilter made a strong debut, gaining more than 3% on its first day of trading. The gains continued on Tuesday, and it was trading at R27.11 by Tuesday afternoon. Shares started trading at R25.88 on Monday.

Drikus Combrinck, founder of the asset manager Capicraft Investment Partners, believes Quilter is a more exciting investment proposition than  Old Mutual Limited. "Old Mutual will struggle to gain market share in South Africa." While Quilter also competes in a competitive industry in the UK, Combrinck believes it has more scope for growth. 

On Tuesday morning, Old Mutual Limited debuted at R28.50 on the JSE, before retreating to R28.01 by late afternoon.

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