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London - Insurer Old Mutual [JSE:OML] is to sell its Nordic
business at a paper loss to Skandia Liv for 22.5 billion Swedish crowns
($3.2bn) to cut debt and return surplus capital from the deal to shareholders.
The businesses being sold comprise Old Mutual’s long-term
savings and banking operations in Denmark, Norway and Sweden operating under
the Skandia brand.
Old Mutual originally bought those Skandia businesses
for about $6bn towards the end of 2005, but the company has come under
pressure from shareholders to divest non-core assets to improve investor
returns.
“The sale of Nordic to Skandia Liv represents a truly unique
opportunity to create value for both Skandia Liv’s policyholders and Old
Mutual’s shareholders through unlocking significant synergies from the
combination of Skandia Liv and Nordic,” chief executive Julian Roberts said on Thursday.
Roberts added that Old Mutual’s Skandia UK business would
not be impacted by the sale, and that Old Mutual expected to complete the deal
towards the end of the first quarter of 2012.
Old Mutual shares surged nearly 10% higher in early morning
trade on the back of the planned sale. Its London-listed shares were up 9.5% at
121.41 pence, making them the top gainer on Britain’s benchmark FTSE 100 index.
“It’s a hugely positive announcement. It goes a long way to
reducing the complexity of Old Mutual, and will make the group less geared and
easier to understand,” said an analyst, who declined to be named.
Old Mutual's 'conglomerate discount'
Old Mutual has recently embarked on a programme of selling
off businesses it feels are no longer core parts of its operation.
It sold its American life insurance business to hedge fund
Harbinger this year and remains keen on selling its stake in South African
lender Nedbank Group [JSE:NED].
Investors have complained that the market value of the group - which runs banking, insurance and asset management operations in 33 countries - is below the combined standalone value of its businesses, weighed down by a
“conglomerate discount”.
Old Mutual said it hoped that the Nordic sale would
eventually be earnings enhancing, once it returned surplus capital arising from
the transaction to shareholders.
Investment banks Evercore Partners and Morgan Stanley both advised Old Mutual on the deal.
