OM unbundling may affect Nedbank shares
Old Mutual’s decision to unbundle its stake in Nedbank is likely to result in an overhang in the banking group’s share price. But experts expect shares in Nedbank to be snapped up.
Old Mutual PLC (PLC), which holds a 54% stake in Nedbank, is to unbundle its stake in the bank to 19.9% as part of its managed separation.
The insurance group is busy splitting itself into four standalone businesses – Old Mutual Emerging Markets (OMEM), Old Mutual Wealth (OMW), Old Mutual Asset Management (OMAM) and Nedbank – to unlock value for shareholders.
The break-up will see it form and list a new SA holding company Old Mutual Limited (OML), which will house PLC’s stake in Nedbank as well as its emerging markets business and PLC residual interests, in Johannesburg and London among other jurisdictions in 2018. At the time of listing OML will hold PLC’s current 54% stake in Nedbank, which will then be unbundled to a minority 19.9% stake.
Experts say the decision to unbundle a 34.1% stake in Nedbank, worth around R35 billion, is likely to cause an overhang, whereby trade in the banking group’s shares may lessen as buyers, expecting the share price to fall, hold out on purchases.
JustOneLap’s Simon Brown said the market is likely to preempt the unbundling and start weakening the share price. He added that the longer the process takes, the more pressure Nedbank’s shares are likely to face.
It’s likely that OML shareholders will be offered a cash dividend in return for their shares in Nedbank, which would be sold via a book build of some kind, said Renier de Bruyn at Sanlam Private Wealth.
Adrian Cloete at PSG Wealth, said shares in the banking group are likely to be snapped up given its attractive price-to-book (P/B) ratio of 1.3x, price-to-earnings (P/E) ratio of 8.9x and dividend yield of 5.9%.
Speaking at an OML investor showcase in Johannesburg, Nedbank chief executive Mike Brown said unbundling would occur some months after OML’s listing so as to allow its shareholder base to settle and minimise flowback so that OLM shareholders are effectively shareholders in waiting for the OML distribution.