Market impressed by Nedbank talks

Johannesburg - Shares in Nedbank Group [JSE:NED] and its parent Old Mutual [JSE:OML] were trading sharply higher on Monday, after Old Mutual admitted for the first time it had received interest from outsiders for its 53% stake in Nedbank.

Earlier on Monday, Old Mutual said it had given European banking giant HSBC exclusivity to conduct a due diligence on Nedbank operations.

At 10:15 Old Mutual shares were up 3.91% to 1 435c per share, while Nedbank was trading 6.50% higher at R139.62/share.

Speaking to Fin24.com following Old Mutual's announcement, Nedbank CEO Mike Brown said discussions were still in the early stages and that no firm decisions had been taken. However, he believed the outcome would be positive for the group.
 
"HSBC's pedigree speaks for itself," said Brown. HSBC is the world's fourth-largest banking group.
 
A major obstacle in the way of a possible takeover could be the South African Reserve Bank's (Sarb's) cautious attitude towards foreign ownership of a local group.
 
"Old Mutual has had preliminary discussions with the South African regulatory authorities about the merits of the transaction, but recognises that these parties, as well as the Nedbank Group board, will have to consider the merits of the proposed transaction," Old Mutual said in its announcement.

"The relevant parties will make the necessary formal applications in this regard in due course."
 
HSBC has indicated it would look to buy out as much as 70% of the issued share capital in Nedbank. Old Mutual currently holds 53%. A stake of 70% would reduce the amount of free float in Nedbank shares on the JSE.
 
When asked whether the transaction would have a negative impact on many of the cross-selling benefits Nedbank has enjoyed with Old Mutual in terms of insurance products, Brown did not seem too concerned.
 
He pointed to the Absa transaction with Barclays, saying Absa had continued to sell Sanlam products.
 
Stockbrokerage Barnard Jacobs Mellet Holdings [JSE:BJM] told clients Nedbank was in "speculative territory at the moment".
 
"All eyes will be on the price and any corresponding announcement about what Old Mutual will do with the money," BJM said. "Given past records of both companies, we're not expecting too much in terms of fireworks when it comes to what it gets paid for the stake."

No price has yet been set, but Old Mutual has indicated that it may look to take as much as much as £1.5bn of proceeds out of the country and would need to work with the Sarb to facilitate this to limit the effect on the currency markets.
 
 - Fin24.com