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Momentum move: what now RMBH?

Johannesburg - FirstRand's unbundling of Momentum could herald further steps that will affect Rand Merchant Bank Holdings (RMBH) in particular.

RMBH is currently the controlling shareholder of FirstRand. Through the unbundling of Momentum it is envisaged that FirstRand will become a focused banking group, as it would then be rid of all its insurance interests.

These interests become part of the new insurance group that will arise from the merger between Momentum and Metropolitan. FirstRand will have no interest in the new group.

On the other hand RMBH will hold - other than its existing 30% stake in the FirstRand group - a future 25% to 35% interest in the new insurance entity.

On Wednesday RMBH issued a statement to say that further restructuring is on the cards.

This includes the possible separation of its banking and assurance interests and a separate listing of its stake in FirstRand. A listed entity with RMBH's stake in the new group, as well as its interests in Discovery and OUTsurance, is also projected.

Analysts reckon the new role for RMBH is being driven, in particular, by the group's three founders: Laurie Dippenaar, Paul Harris and GT Ferreira. The three have ended direct management involvement in FirstRand, although they are still on the board.

FirstRand Group's management now centres on Sizwe Nxasana as CEO and Johan Burger as head of operations and finance. The strategic focus is on expansion in Africa and a recovery in consumer markets through brands like First National Bank (FNB) and WesBank.

Francois du Plessis, an analyst at Vega Securities, says the proposed transaction raises several questions. FirstRand's top management has always stressed that it would not unbundle its interests.

Momentum was said to be important for the cross-selling of products through other subsidiaries, such as FNB. Momentum was also beneficial to FirstRand's earnings.

The unbundling is contrary to the strategy, Du Plessis argues. He believes that, on the face of it, unbundling Momentum makes sense. But one should not run away with the idea.

The projected merger between Momentum and Metropolitan could produce unexpected problems, given the different cultures of the groups, he says.

The unbundling could unlock value within the FirstRand Group.

This is something that analysts have long advocated, but FirstRand's management has continuously denied is on the table. For that reason the group was divided up into entities like retail and insurance so as to create synergies.

The new insurance group could see RMBH continuing to hold significant stakes in two competing insurers.

FirstRand's stake in Discovery was unbundled to RMBH some time ago, so that RMBH currently owns 25% of Discovery. FirstRand has no vested interest in Discovery.

If RMBH eventually owns 30% of the new insurance group, there will effectively again be an overlap between the new group's operations and Discovery.

Judging from the share price movements on Wednesday after the deal was announced, RMBH and Metropolitan will be the major beneficiaries.

- Sake24.com

For business news in Afrikaans, go to Sake24.com.

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