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Johannesburg - Old Mutual [JSE:OML], which plans to raise as much as $200m selling more shares in its US asset management unit, may dispose of the rest of its stake as the insurer focuses on emerging markets, an SBG Securities analyst said.
“This sale is part of a long-term plan to dispose of the majority or all of the shares,” Risto Ketola, head of financials coverage at SBG in Johannesburg, said on Tuesday in an emailed response to questions. “I don’t think Old Mutual will own any shares in this business on a three-year view.”
Bank of America Merrill Lynch, Morgan Stanley, Citigroup and Credit Suisse Securities (USA) are running a sale of stock by parent Old Mutual, OM Asset Management said in a filing Monday. The size and price of the sale will be determined after investor meetings, OMAM said.
To sharpen its focus on its UK wealth and insurance businesses and faster-growing emerging markets, especially in Africa, Old Mutual has sold Skandia units in Europe and its life insurance business in the US.
The insurer, which holds almost 80% of OMAM, as the money manager is known, first sold 22 million shares in an October New York initial public offering at $14 apiece. Proceeds of the latest sale will be used for general corporate purposes, according to London-based Old Mutual.
“I would prefer Old Mutual distributing the proceeds as dividends or rather deploying the capital to grow and develop the multi-boutique US asset management business,” said WJ de Vries, an analyst at Avior Capital Markets in Johannesburg.
“In the short term, the excess supply could put pressure on the OMAM share price as the offer price will likely be below the current market price to entice investors.”
Good timing
OMAM had total assets under management of $224bn by the end of March, its filing shows. The stock closed Monday at $18.99, valuing OMAM at $2.29bn.
“The fact that the share price is up from $14 to $19 since the listing also means that this might be an attractive time to do so,” said SBG’s Ketola, ranked second among South African insurance analysts in the Financial Mail’s annual survey. “The improved liquidity on OMAM will be beneficial over time.”
OMAM dropped 1.9% on Monday, the most in a month. Old Mutual, Africa’s largest insurer, retreated as much as 1% to 206.60 pence in London trading Tuesday, its lowest intraday price since February.
“Old Mutual’s share price is under pressure because the cash proceeds and subsequent corporate purchases are unlikely to earn as high returns as they would had it remained invested in OMAM,” Avior’s De Vries said.
“Old Mutual’s long-term aim is to grow the OMAM business by establishing new affiliate partnerships and expanding its global distribution reach.”
OMAM has affiliations with seven “boutique money managers,” the biggest of which is Barrow Hanley Mewhinney & Strauss with $97.6bn in assets under management, according to the filing.
“We will selectively pursue partnerships with additional boutique asset managers that can enhance our growth potential and diversify our earnings drivers,” it said.
