Let Old Mutual prove its mettle
When Old Mutual Ltd lists on the JSE on June 26, it will be a landmark event, not just for Old Mutual and the JSE; it will be a symbolically important event for SA. The new company, which will have its primary listing on the JSE with a secondary listing in London, is one of the two that has been split out of London-listed Old Mutual to effect the group’s managed separation process. Old Mutual Ltd is a sub-Saharan African financial group that looks, in a way, like a grown-up version of the Old Mutual that left SA in 1999 and set up its head office and primary listing in London.
The soon to be JSE-listed company is likely to have a market value of R120bn or more. It’s not every day that SA’s investment community has a new listing that large, or that symbolic, and for the new Ramaphosa administration the “coming home” of Old Mutual to Johannesburg will be a nice moment, cementing the new air of confidence in SA.
Inevitably, though, the listing will raise questions about why Old Mutual — and the other South African giants that shifted their listings to London in the late 1990s and early 2000s — ever moved at all, and whether it was worth it. The “London five” that were given permission to move were Billiton, Anglo American, Old Mutual, South African Breweries (SAB) and Dimension Data (Didata), while Investec was later allowed to go to London as a dual LSE/JSE listing. In Old Mutual’s case some in the markets wondered if it was just a way for then CEO Mike Levett to externalise his pension, much as Christo Wiese externalised his assets (somewhat disastrously) decades later.
But it’s easy to forget that times were very different then. There were some strong reasons for firms wanting to expand internationally to move to London. SA’s exchange control regime was liberalising but was still a constraint to doing global acquisitions quickly and easily. Fund management was a much less global business and the pool of capital into which JSE-listed firms could tap was limited.
There were some good reasons to move to London, yet some South African-based firms (such as Sasol and Bidvest) expanded abroad without doing so, and the fortunes of those who did move diverged. SAB, now swallowed up by AB InBev, was the unquestioned success story of the London five. Investec has done well in a more modest way and made the best of the acquisition currency the London listing gave it. Billiton disappeared into BHP Billiton; Didata was bought out too. While Anglo has survived and sometimes thrived, it is much slimmed down.
Arguably, whether these companies did well or badly for their shareholders was much more about the quality of management and execution of their international expansion strategies than it was about where they were listed.
Old Mutual’s record was patchy, with many bad acquisitions, which subsequently had to be unravelled. It severely underperformed its largest South African rival, Sanlam. In the end it decided it had to break itself up because it was simply uninvestable: the big emerging market investors didn’t want its UK and US business, and the developed market investors didn’t want its African and emerging markets business.
The test of its break-up decision will be whether the sum of the parts proves to be worth a lot more than the Old Mutual conglomerate was. The jump in the share price lately suggests the market is at last starting to recognise the upside to be gained once the two new companies, in SA and the UK, are set free, with a third — Nedbank — to be unbundled. Crucially, the test will be whether each of the three companies does more independently than it ever did as part of the group.
The new Old Mutual Ltd has a strong brand and strong market position. With its centre of gravity now clearly in SA and its focus clearly on sub-Saharan Africa, it has the potential to become more efficient and effective and to challenge its local rivals headon. Now it just has to start realising that potential.
IT HAS THE POTENTIAL TO BECOME MORE EFFICIENT AND EFFECTIVE AND TO TAKE ON ITS RIVALS