Old Mutual up on sale talks

Johannesburg - The market reacted enthusiastically on Monday to rumours that financial services giant Old Mutual is considering selling its US Life operations, with the share gaining 2% in morning trade.

Earlier on Monday, the Financial Times cited unnamed sources who claimed Old Mutual had hired investment banking group JP Morgan Chase to advise about the possible sale of the troubled subsidiary.

Last week, managing partner at UK-based Cevian Capital, Christer Gardell, pushed Old Mutual's management to consider selling the US Life business, and to list the group's Nordic operations (Skandia) separately to unlock value. Cevian Capital holds a 5% share in Old Mutual Plc.

Old Mutual pumped more than $500m in capital injections from 2008 to 2009 into its US Life operations. The subsidiary posted a small operating profit for the six months to end-June 2009, but still had an unrealised loss of $1.6bn on its books at the time.

Recently, analysts at Standard Securities proposed a split listing of Old Mutual's South African and international assets. "For South African investors, investing in a stand-alone Old Mutual SA (OMSA) is likely to be more attractive than investing in Old Mutual Plc, given OMSA's 23%-plus return on allocated capital since 2005 and ability to generate cash."

Standard Securities believes Old Mutual's share price could still rise by as much as 33%, to 1 700 cents per share.

Analysts at RMB Morgan Stanley agree that Old Mutual appears cheap compared to sector peers. They estimate there is as much as 40% upside on the Old Mutual share price, if the group is broken down into a "sum of parts" valuation.

A break-up will also allow investors to pick and choose which parts of the Old Mutual business they want to invest in.

- Fin24.com