EDITORIAL: Old Mutual’s new future
The break-up of Old Mutual may well make a good business school case study in the future, but first, the group has to complete it. And the clock is ticking
There cannot be too many companies that have undertaken a process as complex as Old Mutual’s "managed separation".
Demerging companies or unbundling a company from its parent to put it directly into the hands of shareholders are common enough transactions. But in the case of London-listed Old Mutual, it is breaking up a group that has been assembled in a series of transactions over the past 18 years, selling some pieces, unbundling others and, crucially, creating standalone businesses out of two key divisions that will be spun off into listed companies held directly by the group’s shareholders.
And it is doing all this across borders and in a large number of jurisdictions where it will require the consent of regulators as well as support from shareholders and other funders.
The break-up of Old Mutual may well make a good business school case study in the future, but first, the group has to complete it. And the clock is ticking: it has undertaken to "materially complete" the process by the end of 2018.
Although the shape of the "managed separation" was far from clear when the group first announced it early in 2016, the pieces of the puzzle are now coming together, as is the sequencing of the complex series of moves that are required.
The report-back with Old Mutual’s interim results last week indicates it is making fairly rapid progress. But there are still significant hurdles to jump. The "execution risk", as analysts call it, is still very much there.
And, although the process has the potential to release huge value for Old Mutual’s shareholders, while at the same time bringing its original core business back home to SA, there are no guarantees it will all work out as planned.
The group is splitting into four component parts, one of which it has now effectively got rid of, ending a difficult chapter in the international acquisition strategy the group has undertaken since its listing in London in 1999.
In recent months, the group has sold its controlling stake in its listed US asset-management business down to 5%. It has also sold off its main other noncore businesses, in Italy and India.
These asset sales have raised substantial cash that Old Mutual can use to pay down debt and inject capital into the two big new companies it is building out of its UK and emerging-markets businesses. One is the UK Wealth Management business that will list on the London Stock Exchange in 2018. The other is its SA-based emerging markets business, the core of which is the original Old Mutual, which will have its primary listing in Johannesburg.
The group has now installed new chairmen, CEOs and finance directors in the new companies and is tackling the challenges of creating the capacity they will each need as standalone listed companies. The plan is to unbundle Nedbank from the Johannesburg-based emerging markets business once it comes home.
One way or another, Old Mutual shareholders will end up with shares in the London-based wealth-management company, the Johannesburg-based emerging-markets business and, eventually, in Nedbank. By the end of 2018, the London head office, which has already halved in size, will be closed. It is all going to cost well north of £200m, but the "prize", as Old Mutual executives put it, is that the process promises to unlock the conglomerate discount at which the group’s businesses are trading and put the emerging companies into the hands of shareholders.
But a host of regulators, SA’s included, has to say yes first and that’s not a done deal yet. In theory, SA’s regulators should be racing to welcome Old Mutual home, but regulatory matters never seem predictable or smooth. It will no doubt be an interesting and challenging year for the group.