ARC to up stake in Alex Forbes via Sanlam
Consideration includes employee benefits and consulting arms
BUSINESS Report can today reveal that Patrice Motsepe’s investment vehicle, African Rainbow Capital (ARC), is set to purchase some of Sanlam’s assets using Alexander Forbes’s shares in an effort to increase its stake in Alexander Forbes, the country’s largest pension fund administrator.
ARC, which is a wholly owned subsidiary of Sanlam’s biggest shareholder, Ubuntu-Botho, is the second-biggest shareholder in Alexander Forbes.
The assets under consideration comprise the employee benefits administration and consulting operations of Sanlam Limited, which include Simeka Consulting, Absa Consultants and Actuaries, and Sanlam Employee Benefits (Sanlam Retirement Fund Administration and Sanlam Umbrella Solutions).
A source close to Alexander Forbes said that the deal, codenamed Project Synergy, was expected to be concluded by June.
“The consideration is in the R1 billion to R1.5bn mark, with the intent for the purchase consideration to be in Alexander Forbes shares, which would then be transferred to Sanlam, which in turn would pass this through to ARC, thereby increasing ARC’s ownership in Alexander Forbes,” the source said.
“A stipulated condition is the receipt of group life premium flows from Alexander Forbes to Sanlam, alongside specific asset flows to Sanlam Investments from Alexander Forbes Investments. This naturally raises conflict-of-interest concerns, not to mention the optics around governance and Competition Commission rules.”
Nonkululeko Nyembezi, Alexander Forbes’s chairperson, said the company did not respond to merger-and-acquisition rumours. Sanlam denied there was such a deal in place.
Ian Kirk, Sanlam’s chief executive, said that, among other checks and balances, Sanlam applies robust governance, comprehensive transaction approval and capital management measures to any potential transaction.
“There is currently no transaction for the board’s consideration in relation to any of the Sanlam businesses mentioned in the Business Report enquiry,” Kirk said.
However, in communication to some Alexander Forbes board members in November 2017, ARC co-chief executive Johan van Zyl elaborated ARC’s intention to get its hands on Sanlam’s employee benefits, administration and consulting businesses.
“We have agreed with Ian that we move forward as quickly as possible, given their specific constraints. Our very clear understanding is that these assets will be paid for in AFH shares, which will subsequently be sold by Sanlam to ARC. Among others, these assets include Sanlam Umbrella Solutions, Sanlam Third Party Pension Fund Admin, the Sanlam Institutional Multi-manager, Simeka, etc. I will personally drive this from a Sanlam board perspective to ensure things happen quickly,” Van Zyl wrote.
Van Zyl also serves as Sanlam chairperson and chief executive of Ubuntu-Botho.
Van Zyl referred all questions to ARC to Ainsley Moss, the executive for corporate and stakeholder relations.
Moss said it could not be assumed that such a transaction was taking place because there was a conversation between executives of different companies.
He said such a transaction would be possible only if the boards of the respective companies voted in favour of such a transaction.
“Also, if a transaction was put before the Sanlam board for consideration, it would have been part of a package of options to support Sanlam’s growth strategy. This would not have been presented as a stand-alone initiative,” Moss said. “Kindly note that Dr van Zyl was appointed in June 2017 as chairperson of the Sanlam board. At this point, the exploratory talks between Sanlam and Alexander Forbes were already under way.”
Ubuntu-Botho and Sanlam have a long-standing relationship starting in 2004, when the original black economic empowerment deal was signed. Since then, Sanlam’s market capitalisation has surged from R27bn to more than R170bn.
ARC acquired a 10 percent stake in Alexander Forbes in January 2017 in a strategic empowerment deal.
Alexander Forbes at the time said its shareholders approved ARC’s acquisition in its African operations, with net proceeds of R678.1 million to be settled in cash.