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Cape Town - Old Mutual's share price dropped more than 6% on the JSE on Friday, after the group confirmed plans to separate its activities into four business units: OM Asset Management, Nedbank, Old Mutual Emerging Markets and its UK wealth business.
The most interesting part for South Africans is the announcement that Nedbank [JSE:NED] will be separated and that Old Mutual [JSE:OML] will gradually reduce its 54% stake in the local bank.
Old Mutual said in a statement on Friday that the separation will be done in a way which maximises value to shareholders and gives the different businesses more room to expand.
By lunch time the share price was down 6.51% to R38.61, while Nedbank gave up 3.22% to R175.18. Old Mutual's share price rose almost 10%
on Monday after news of the possible restructuring broke over the weekend.
The breakup is the culmination of a strategic review started by new CEO Bruce Hemphill in November last year. The 171-year-old company’s main South African operations have come under pressure amid slowing economic growth and a depreciating local currency.
Old Mutual also released full-year results to December on Friday morning, with pretax operating profit rising 11% to £1.7bn. There was strong growth in its wealth and institutional asset management businesses. Net income rose 4.8% to £945m from £902m a year earlier.
Nedbank and Old Mutual Emerging Markets, which both failed to grow profits in the group’s reported currency during the year, remained the largest contributors to group profit, bringing in a combined £1.4bn before costs.
Nedbank profit increased 7% on a constant currency basis but fell 2% in reported currency. Nedbank contributes 91% of Old Mutual’s banking and lending profits and represents 96% of its loans and advances.
Nedbank said in an announcement on SENS that Old Mutual’s restructuring will have no impact on the strategy, day-to-day management and operations of Nedbank Group, its staff and its clients. Nedbank Group remains an independent entity listed on the JSE.
Nedbank's statement on SENS further reads: “Nedbank Group is governed, managed and operated as a South African regulated banking entity within the Old Mutual group for the benefit of all Nedbank Group stakeholders. It is a well-capitalised South African bank with a strong balance sheet and a clear strategy to deliver ongoing returns to shareholders.
“On 2 March 2016, Nedbank Group announced its audited results for the year ended 31 December 2015 and highlights included growth of 9.6% in headline earnings to R10.8bn, a 9.0% increase in net asset value per share, an 11.3% common equity tier 1 ratio and a 7.7% increase in the full-year dividend per share.
“Old Mutual and Nedbank Group recognise that their commercial relationship continues to be a source of value underpinning successful collaboration activities in both South Africa and the rest of Africa. It is therefore intended that the strategic relationship between Nedbank Group and OMEM (Old Mutual Emerging Markets) will continue following the Old Mutual managed separation. Old Mutual and Nedbank Group remain committed to achieving the previously announced 2017 pre-tax synergies target of R1bn."
In time, Old Mutual envisages reducing its interest in Nedbank Group to an appropriate strategic minority position to underpin the future commercial relationship, Nedbank said.
“The exact mechanism to achieve any reduction in Old Mutual’s shareholding has yet to be finally determined. Old Mutual currently envisages reducing its shareholding in Nedbank Group primarily by way of a distribution of Nedbank Group shares to the shareholders of Old Mutual in an orderly manner and at an appropriate time in the context of the Old Mutual managed aeparation and does not intend to sell any part of its shareholding in Nedbank Group to a new strategic investor.”
Old Mutual expects the separation of its business units to be materially completed by the end of 2018.
