Johannesburg - On Thursday the Old Mutual [JSE:OML] plc share price had its strongest rise since March 2009, following the company's announcement that it is to sell its Nordic businesses.
On the JSE Old Mutual's share price rose 10.81% to R16.10 and at the South African close the price on the FTSE was 10.93% up, at 124.20p.
Before the Thursday rise Old Mutual shares were trading at a 40% discount to embedded value.
The group announced that it planned to sell its long-term savings and banking businesses in Sweden, Denmark and Norway to Skandia Liv for £2.1bn. Skandia Liv is a mutual life insurer and a wholly owned subsidiary of Old Mutual and will operate independently from Old Mutual if the deal is finalised in the first quarter of next year.
In 2006 Old Mutual bought Skandia AB, the holding company of Skandia Liv, for $8bn to gain access to its businesses in the UK and Scandinavia. These businesses will not be affected by the transaction.
In the six months to end-June the businesses being sold contributed £60m to Old Mutual's profits and have been valued at £1.4bn by Goldman Sachs.
Old Mutual will use the money to settle some of its £3bn foreign debt.
It will also pay surplus capital out to shareholders.
Patrice Rassou, head of equities at Sanlam Investment Management, says the deal is very good news. “Embedded value can be unlocked, the group's debt burden can be considerably reduced, it can declare a special dividend and it will be much easier to attach a value to the remaining businesses (South Africa, portfolio management in the US, and Skandia UK),” says Rassou.
The group is aiming to pay off £1bn of its total debt by November next year. In June and September this year it paid off £473m and £31m respectively. Last year it sold its US life operation for $350m.
One of Old Mutual's objectives is also to simplify the group structure.
Chief executive Julian Roberts says the group will now focus on its long-term savings activities, where good growth opportunities exist.
In February the group will announce further details of the distribution to shareholders.