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14 December 2011 23:12

Market watcher & company news: Wayne McCurrie - Momentum Asset Management

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Alec Hogg is a writer and broadcaster. He founded Moneyweb

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    Wayne regrets Old Mutual’s sale of the Skandia businesses.

    [Apologies - no podcast available]

    ALEC HOGG: Wayne McCurrie is with us via cellphone – where are you at the moment, Wayne?   

    WAYNE McCURRIE: I'm in Plettenberg Bay.

    ALEC HOGG: My goodness! Aren't we privileged to have you on our programme when you are busy with watching whales and doing other kinds of things that the rich and famous do down on their holidays, Mr McCurrie! I have admiration for you – going to the same place that most of Joburg goes for their holidays.

    WAYNE McCURRIE: They are not all here yet. It's still quite quiet actually.

    ALEC HOGG: Wayne, did you get a chance to look at the Steinhoff deal?

    WAYNE McCURRIE: I did have a very brief glance at it, Alec. It does look quite complex as to what's going to happen. Look, in Steinhoff’s life it's relatively small. But the market certainly didn’t like it today and pushed Steinhoff down I think 2%-odd. So certainly markets haven't quite interpreted what Markus is going to do with the stake in PSG.

    ALEC HOGG: It's extraordinary. He owns R880m worth of PSG shares – that’s coming out in the announcement, and he wants to swap those for Steinhoff shares at a  discount. R22.74 is the rate at which it’ll be swapped at the Steinhoff price, which is at quite a discount to the current Steinhoff share price. But all of this has to go through shareholders’ special resolution. The last time they tried something like this was with the JD Group, where in fact they got the thumbs-down.

    ALEC HOGG: Ja. Look, we have to study this and our analyst on Steinhoff will have to have a good look at it before we determine what action, if any, we are going to take on it. It is quite something to digest. But Steinhoff is a R40bn-odd market cap share, so it's relatively small in their lives. But obviously we'll have to have a good look at it.

    ALEC HOGG: But what is Steinhoff doing owning 20% of PSG?

    WAYNE McCURRIE: I'm not sure. That's what we'll have to look at, because I don’t immediately see the complementary between Steinhoff’s business and PSG – and the rationale given in the announcement just that they are dealing with complementary businesses, I didn’t quite work that one out. But obviously we are going to get more information out of Steinhoff on this before we have to act on anything.

    ALEC HOGG: They are going to have quite a selling job here. The Steinhoff share price today, as you say, Wayne, down 1.8%, 43c, to R23.57. They are swapping their shares or giving shares to Markus Jooste, Christo Wiese and Thembeka Capital at a price of R22.74. So it's a big discount, and there are quite a lot of shares involved – a couple of billion rand there.
        Let’s not get distracted, because the big deal of the day was Old Mutual selling off its Scandinavian interests of Skandia. Julian Roberts tells me they actually made a book profit on the assets that they had there. But, boy, did they work hard  to get them in the first place. It seems rather strange to sell them now.

    WAYNE McCURRIE: Look, the share price is up 12%, so the market obviously likes this one. I'm actually a little disappointed that they are selling it. The business seems to have turned around quite nicely and actually seems to be working quite well, so they might be selling off a good business to pay back capital to shareholders and to reduce their debt a little bit, because certainly in the last couple of results that Old Mutual have come out with the Skandia business has actually been doing quite nicely. Maybe that’s why they are selling it. It was one of the units they can sell quite readily to focus back on, I suppose, core life assurance.

    ALEC HOGG: Well, certainly the feedback we see – and Old Mutual made absolutely certain, or their communications guys did, that we got to see what the international brokerage houses and research analysts are thinking about – and the feedback there was very positive. For instance, Goldman Sachs valued the assets at one point at £1.4bn, and they sold them for £2.1bn. These are big numbers, aren’t they, Wayne?

    WAYNE McCURRIE: They certainly are big numbers. And maybe ultimately it will be good for all Old Mutual shareholders because their massive expansion, which unfortunately didn’t turn out to be particularly productive, they’ve scaled back. They’ve sold out of US, they are out of Bermuda, they’ve scaled that operation enormously. We forget the bad days – this company was in dire trouble, and maybe this is just another step along the way of rationalising the business. But I always liked the Skandia business. They might have overpaid for it, and I can remember clearly discussing it with you at the time, saying that these guys are paying absolute top dollar for this business. It doesn’t matter what you’ve paid, because their share price takes that into account. The actual business was working quite well and I must say personally I'm a little bit disappointed that they are selling it, but obviously the market likes it because it's up strongly here now. Old Mutual is a R90bn-odd market cap, and they just literally added R10bn onto that today. So the market’s clearly looking forward – there’s going to be some special dividend coming out of this, because they are going to probably have excess capital and the market’s looking forward to that.
    ALEC HOGG: Wayne, £2.1bn – it's more like R25bn that they added today.

    WAYNE McCURRIE: Yeah, but the market cap went up by R10bn.

    ALEC HOGG: So they’ve got R10bn more.

    WAYNE McCURRIE: The market did put a value on Skandia, it just didn’t put that much of a value it.

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