Old Mutual gets cash for debt

Old Mutual has taken another step on the road to breaking itself up, with a $446m sale of a stake in its US fund management business that will help it to reduce its head office debt burden and meet the costs of its “managed separation”.

The latest US deal, which comes after the London-listed group sold its holding in New York-listed Old Mutual Asset Management (OMAM), down from 66% to 51% in December, will see it sell a further 24.95% of OMAM to China’s HNA Capital, which is in airports, containers as well as in financial services.

Old Mutual has made it clear it plans to divest its entire stake in OMAM and the HNA deal does not in any way restrict it from selling the remaining 26% to other shareholders.

Old Mutual strategy director Ian Gladman said at the weekend the deal was a win-win for OMAM. “It will reduce the overhang in its shares and bring in a stable shareholder and it will realise a dollar premium price for Old Mutual PLC.”

Boston-based OMAM is a “multi-boutique” fund manager with eight affiliates and $240bn under management.

The group’s “managed separation”, announced a year ago, will result in it splitting into its four component businesses and closing its London head office.

The four businesses include OMAM and listed Nedbank, as well as its unlisted UK wealth management business and SAbased Old Mutual Emerging Markets business.

The London head office has already halved its staff complement and the group has committed to substantially complete the managed separation process by the end of 2018. The once-off costs of the break-up were

expected to be about £200m, Old Mutual CEO Bruce Hemphill said at the time of the group’s year-end results earlier in March, but the process could release as much as £2bn of value for shareholders.

To pave the way for the separation, the group will have to pay down the debt at head office level, which stood at £1.35bn a year ago. Since then, the group has reduced the debt to £950m and cut interest costs by £21m a year, helped by the sale of its business in Italy and the first sale of shares in OMAM in December. The latest deal, announced on Friday, should bring the total raised through asset sales to about £800m, depending on the dollar-sterling exchange rate.

The group has not said how much of the OMAM proceeds will go to settle debt and to pay the costs of the separation. It is possible that part of the cash will also be deployed to provide fresh capital for the unlisted businesses and contribute to dividends for shareholders.

Old Mutual plans that the two unlisted businesses will be reshaped as stand-alone businesses and listed in their own right before the end of 2018.

The group has already begun the process, appointing new independent chairmen for each of the businesses to drive their strategies. The UK wealth management business will be listed in London, while the Old Mutual Emerging Markets business, which includes the group’s life insurance, asset management, short-term insurance and lending businesses in SA and other emerging markets, will be listed in Johannesburg.

Former finance minister Trevor Manuel has been appointed to chair the emerging markets arm.

The Old Mutual share price closed on Friday at R34.69.