Johannesburg - Old Mutual has missed the opportunity to breathe new life into its management team by appointing Julian Roberts as replacement for the now deposed ex-CEO Jim Sutcliffe, an analyst said.
Sutcliffe quit the company earlier on Wednesday as details emerged its US business faced further write-downs amid ongoing financial distress in that country's financial markets. Old Mutual said the appointment of Roberts, who currently heads Old Mutual's Skandia division, had been unanimously supported by the Old Mutual board.
Said Neill Young of Coronation Asset Management: "I don't want to prejudge the appointment of Julian Roberts (as the new CEO), but he has been part of the management team that hasn't delivered value over a period of time."
Shareholders and analysts have long been critical of Sutcliffe for destroying value at the London-listed insurer and wealth manager. Over the five years, the company has produced a total return of 8.23% (excluding dividends) for shareholders who held the share over the entire period; local competitor Sanlam has returned 140%, while the Liberty Group has produced 44%.
Around 10% of the Coronation Financial Fund comprises Old Mutual shares, according to unit trust data supplied for the second quarter of 2008.
Young believes that the departure of former CEO Jim Sutcliffe could have presented an opportunity for some fresh leadership to come in and provide new strategic direction. He believes that the appointment of Roberts means that the company will not make any major swings away from its original strategy.
No change in strategy
The sale of Old Mutual's majority stake in short-term insurer Mutual & Federal was scheduled to start in September. When asked if the new leadership would change the company's strategy on the sale, Young said: "We wouldn't expect it to. Roberts has previously indicated that Old Mutual would like to reduce the South African contribution to the embedded value earnings mix."
This view was confirmed by Roberts in a radio interview on Wednesday night. Speaking on Talk Radio 702's World at Six programme, he said his core focus was to look at the Bermuda business, a hedged fund operation in US and Asian markets that provides currency hedging and investment guarantees. The market's downturn has resulted in Old Mutual having to increase guarantees to these funds.
"Once that is sorted out, we can begin to look at other aspects of the business," said Roberts.
Roberts said he was keen to look at ways to unlock shareholder value.
Old Mutual is scheduled to begin a "competitive bid" process for the sale of Mutual & Federal. Old Mutual has been criticised for potentially forcing through a sale of what's deemed by the investment community to be a valuable asset at a time when equity valuations are low.
Roberts also indicated he would be looking at a less decentralised model, which had been favoured by former CEO Sutcliffe. This would mean that he would be putting increased emphasis on oversight and risk management at the Old Mutual business units.
Deep embedded value
Despite much of the negativity around Old Mutual and its poorly performing US operations, fund managers believe that the investment case remains sound.
When Old Mutual reported its interim results to June 2008 in August, the company had an embedded value of around R20.
At close of trade on Wednesday, Old Mutual was trading at R13.90 per share.
Speaking on the World at Six, Chris Stewart of Investec Asset Management said the share price "is trading at a significant discount to the 'sum of parts' valuation".
Old Mutual comprises various operating units such as Skandia, Nedbank, Old Mutual South Africa and Mutual & Federal.
Conglomerates with many subsidiaries historically trade at a discount to the combined value of these businesses and value can be extracted by selling off these individual business units.
- Fin24.com