Picture: 123RF/RATTANASIRI INPINTA
Picture: 123RF/RATTANASIRI INPINTA

Insurance giant Old Mutual has cleared the final hurdle in splitting its business into four units. 

The mar­ket re­acted fa­vour­ably to Old Mutual’s last step in its man­aged sep­ar­a­tion proc­ess, with the in­sur­er’s share price rising 2.2% when ad­just­ed for the Nedbank price on Wed­nes­day.

Old Mutual will complete the unbundling of its 52% stake in Nedbank to share­hold­ers on Monday. About R43.2bn will be distributed  to share­hold­ers through the Nedbank shares, which equates to al­most a third of the in­sur­er’s mar­ket cap­i­tal­i­sa­tion.

However, Old Mutual will re­tain a 19.9% mi­nor­ity stake in Nedbank. 

Al­though the com­pany’s share price fell 26% at face val­ue to R74.21 on Wed­nes­day morn­ing when it start­ed trad­ing with­out the Nedbank share en­title­ment, Karl Gevers, head of re­search at Ben­gue­la Global Fund Managers, said the ad­just­ed price re­flected pos­i­tive mar­ket senti­ment.

“The mar­ket is ap­pre­ci­at­ing Old Mutual. We be­lieve it is attract­ive­ly priced cur­rent­ly.”

War­wick Bam, head of re­search at Avior Capital Mar­kets, said Old Mutual was trad­ing bet­ter than ex­pect­ed af­ter the Nedbank price sep­ar­a­tion.

“The mar­ket has been scep­ti­cal of the man­aged sep­ar­a­tion due to the com­plex­ity in­volved and the ex­tent of changes to the group struc­ture. Un­cer­tain­ty re­garding the nat­u­ral shift in share­hold­ers after the Quilter and Nedbank un­bun­dling has con­cerned in­ves­tors. How­ev­er, the share­hold­ers will set­tle with­in the com­ing weeks, pro­vid­ing in­ves­tors with more clar­ity on the valu­a­tion of the core op­er­a­tions,” he said.

The dis­tri­bu­tion of Nedbank shares to share­hold­ers will take place on  Mon­day, October 15. How­ev­er, Tues­day was the last day on which Old Mutual’s shares en­ti­tled buy­ers to Nedbank shares. For ev­ery 100 Old Mutual shares held, share­hold­ers will re­ceive 3.21176 Nedbank shares on Mon­day. Shares bought from Wed­nes­day were no long­er en­ti­tled to these Nedbank shares. This explained the  26% de­cline. 

Old Mutual be­gan its man­aged sep­ar­a­tion proc­ess in 2016 to split the four businesses that made up made up the group and independ­ent­ly list the two that weren’t yet list­ed. It sold most of its 50.8% stake in the US as­set man­ager in 2017 be­fore rebranding it as Brightsphere In­vest­ment Group in March this year. In June, the in­sur­er list­ed its UK wealth man­age­ment  business as Quilter and list­ed the Af­ri­can and emerg­ing mar­ket busi­ness as Old Mutual Lim­it­ed on the JSE.

Nedbank was the biggest driver to Old Mutual’s 33% increase in income from associates in the first half of 2018. When its earnings contribution was adjusted for a 19.9% stake, Old Mutual’s income statement shows that the bank still contributed R1.3bn to the group’s headline earnings.

Bam said with the fi­nal step in the man­aged sep­ar­a­tion concluded, Old Mutual's man­age­ment can now fo­cus its attention on maxi­mis­ing oper­ation­al prof­it.

buthelezil@businesslive.co.za