A new start on JSE for an Old favourite
Old Mutual Ltd starts on the road back to Johannesburg on Wednesday, showcasing the shape of the new South African and emerging markets company that will arise from the Londonbased group’s break-up ahead of the company’s primary listing on the JSE in 2018.
It is an event that says as much about what has happened to corporate SA, and particularly to the “London five” of the late 1990s, as it does about Old Mutual itself. The company that will be showcased on Wednesday is one of four firms, and two brand-new listings, that will emerge from the “managed separation” the London-listed Old Mutual group embarked on in 2016.
The new company, chaired by former finance minister Trevor Manuel with Peter Moyo as CEO, is the one that will keep the Old Mutual name, housing the group’s South African and emerging markets businesses, with its head office in Johannesburg, its primary listing on the JSE and a secondary listing in London.
In its way, the company is what Old Mutual might have become had it never left SA to embark on a big international expansion drive. Unlike the other members of the “London five”, Old Mutual had never been listed at the time of its London listing in 1999. It was a mutual, owned by its policy holders. The choice of London was driven in large part by the need to ensure the success of its demutualisation, which came after rival Sanlam had demutualised and listed on the JSE a year previously.
The transformation meant policy holders had to be paid out for their holdings by the new shareholders — and in Old Mutual’s case, the concern was that the pool of capital available in the South African market simply wasn’t large enough to accommodate a transaction that big and that the firm would need to tap into the much larger universe of investors that would be available to a London-based company.
At a time when SA had negative foreign exchange reserves, the resultant large inflow of foreign capital was pretty welcome, too, though that would not have been the only reason Manuel, then finance minister, approved the deal.
Those dynamics made Old Mutual a little different from the others — Billiton, South African Breweries (SAB), Anglo American and Dimension Data — whose moves to London were driven by the need to break out of the confines of the postapartheid economy.
The London listings came at a time when SA was opening up to the world and corporate SA was restructuring at a rapid rate. Some of the factors that drove those moves to London were common to all; others were specific to each transaction. It may be hard now to remember just how dominant the five were in SA’s domestic market and how little scope there was for them to expand and grow any further.
With the end of sanctions and the opening of SA’s borders, they now had the opportunity to expand internationally. But the borders were not yet so open that it was easy to finance such expansion. Exchange control was beginning to be liberalised but it was still a constraint to international deal making.
South African companies were allowed to buy businesses abroad but they generally had to do so with debt raised abroad, not with cash taken out of SA. Nor could they use their own shares to pay for mergers or acquisitions, since their international targets weren’t likely to want to be stuck with JSE-listed shares.
Even though by the late 1990s it was possible to find ways of structuring foreign deals and getting exchange control approval to do them, an Anglo or SAB was hobbled by bureaucracy when it went out to compete for good targets.
Gencor/Billiton was the first to move its headquarters and primary listing to London in 1997, followed by SAB, Old Mutual and Anglo American in 1999 and Dimension Data in 2000. A second round resulted in Investec dual-listing in London and Johannesburg in 2002. By that time the authorities were imposing more stringent conditions.
Two decades on, three of the original five have been swallowed up into other larger global groups and that includes arguably the most successful of all the London-based internationalisation strategies — by SAB, which was bought by AB InBev in 2016. Of the two that remain, Anglo is a shadow of its 1999 self and Old Mutual has at last conceded that the entity it built from its London base didn’t work that well and that the parts separately are worth more than the sum.
But the world has changed, and so has SA. Exchange control is all but gone. A large number of South African firms have spread their wings internationally and have found a variety of ways of funding and structuring that to cater for their particular circumstances and strategies. But most have done so from domestic headquarters and JSE primary listings.
So would Old Mutual or any of the London five (or six) make the same choices now as they did then?
SA and the world are so changed it’s hard to know the answer, but nice at least that one of them is heading home.
IN ITS WAY, THE COMPANY IS WHAT OLD MUTUAL MIGHT HAVE BECOME HAD IT NEVER LEFT SA TO EMBARK ON A BIG INTERNATIONAL EXPANSION DRIVE