Old Mutual to slash its Nedbank stake
• Holding to be cut from 54% to 19.9% • Newly listed company to have R110bn market value
Old Mutual will cut its stake in Nedbank from 54% to 19.9% in the end stages of its managed separation process, unbundling the Nedbank shares to shareholders after it has listed its SA and emerging markets business in Johannesburg in 2018.
This will mean that none of SA’s big banks will have a majority shareholder after UK-based Barclays reduced its controlling stake in Barclays Africa ( Absa) to 14.9% earlier in 2017.
London-listed Old Mutual said earlier in 2017 that it planned to distribute most of its Nedbank stake to shareholders as part of the process in which it is breaking itself up into its four component businesses in the UK, SA and US in a bid to get rid of the discount at which it is trading on the market.
However, the group disclosed on Wednesday for the first time how much of the banking group it planned to keep, saying the remaining minority holding in Nedbank would provide a foundation for the continued strategic relationship between the two entities.
Its announcement came as the group showcased the new Old Mutual Ltd, which is the company housing the group’s SA and emerging markets businesses including Nedbank, which will seek a primary listing on the JSE in 2018, soon after the group reports its year-end results in March.
The newly listed company, which is expected to have a market value of R110bn or more, will wait a few months for its shareholder register to settle down before it distributes the Nedbank shares.
Old Mutual Ltd CEO elect Peter Moyo said there was “no magic” in the 19.9% number. Most analysts had expected the group to keep a 15%-20% stake, but some expected more and wondered whether a number below 20% would reduce the group’s capital requirements because it could no longer be considered a shareholder of reference for the bank.
Updating investors on Wednesday, Old Mutual’s director of the managed separation process, Rob Leith, said the process would provide the underlying businesses with a
real opportunity to grow, and once management was freed from the shackles of the conglomerate structure, it could become more dynamic and more disciplined as a result of the direct market scrutiny.
The group was still in the process of obtaining regulatory approvals, but indications were positive and the group was on track to deliver the managed separation by the end of 2018, Leith said.
The group estimates it is trading at a “conglomerate” discount of 10%-20% and one analyst said it was not clear why the market had not rerated the share in anticipation of the managed separation. He estimates the sum of the parts should be worth about R45, well above the R36 at which the Old Mutual share has been trading this week. Investec Asset Management fund manager Chris Steward said the share’s performance was a bit disappointing in the context of the progress the group was making on the managed separation.
Analysts said the SA and emerging markets business could rerate to the same level as rival Sanlam once it was listed. Sanlam is trading on a priceearnings ratio of about 14, while the Old Mutual group’s share is trading on a ratio of about 10.
The process will see the group list its UK wealth management business on the London Stock Exchange in 2018 and it is due to showcase that business to investors in London in the middle of November. The group has already sold down its stake in its listed US asset management business to 5% and has halved staff numbers at its London head office, which it expects to close by the end of 2018.