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Old Mutual may list emerging markets, wealth units in break-up

‘I won’t have a role by 2018’ – CEO, Bruce Hemphill.
Old Mutual Emerging Markets (OMEM) head office in Sandton, Johannesburg.

JOHANNESBURG – Old Mutual plc will consider listing Old Mutual Emerging Markets (OMEM) and UK-based Old Mutual Wealth as part of the “managed separation” of the group into four distinct businesses, CEO Bruce Hemphill said on Friday.

Nedbank and Old Mutual Asset Management (OMAM) are already publically traded and the separation of the four business units could involve “equity market activity for the other subsidiaries,” Hemphill told journalists via a media conference call.

In making its decision, Old Mutual would seek to strike the right balance between “a host of competing interests”, the costs associated with listing, and delivering the planned outcome in an acceptable time frame within the right risk parameters, Hemphill explained.

He said an initial public offer (IPO) would be one of the avenues considered to separate the financial services group into its four principal businesses, namely, OMEM, Nedbank, Old Mutual Wealth and OMAM.

The decision, announced on Friday, has been taken following a strategic review of the business, which found that breaking it up would unlock trapped value and eliminate the conglomerate discount. The firm launched in Cape Town in 1845 as a life insurance company and has since grown to include asset management and banking.

Separating the businesses would result in them being held by those investors who best understood how to value them, while reducing costs and regulatory complexity, Hemphill said.

“There is insufficient synergy between the businesses to justify the regulatory complexity of the structure,” Hemphill said.

Changes to insurance and banking regulation have made capital requirements considerably onerous, and to some extent penalise capital held in offshore banking subsidiaries.

Hemphill said the current structure was confusing for investors, who were not quite sure whether Old Mutual was a developed market or an emerging market stock.

“There’s also a bank involved in this thing. It’s an enormously complex set of issues for investors to deal with and given the number of opportunities that investors have, complexity is a problem,” he said.

As part of the separation, Old Mutual plans to reduce its 54.1% interest in Nedbank to a minority stake primarily by distributing Nedbank shares to the shareholders of Old Mutual. The strategic relationship between Nedbank and OMEM will continue and the two groups voiced commitment to achieving the previously announced 2017 pre-tax synergies target of R1 billion.

Out of a job by 2018

Old Mutual Plc will continue to exist but the functions it discharges will change, Hemphill said, “so there will not be a need for us to run a head office in terms of current arrangements”.

Hemphill said the intention was to remove costs incurred in supporting the group’s current structure.

Job losses were inevitable but would happen on a phased basis, added group finance director, Ingrid Johnson.

Hemphill would not comment on whether Old Mutual would move its primary listing and head office from London to Johannesburg.

“I won’t have a role by 2018. My job is to put myself out of a job and to get this thing done in the right way,” he said.

Commenting on what his plans would be come 2018, he said, “I haven’t even thought about it. We’ve been running flat out for the last four months to get to this point. I’ll cross that bridge when I get to it.”

Hemphill added that he was “really excited” about the separation. “I just think it’s the right thing for this business.”

Old Mutual has been engaging with local regulators throughout the process, who have welcomed the enhanced ability of OMEM and Nedbank to access their natural shareholder base following the separation. 

At 13h30, Old Mutual Plc’s share price had given up 6.15%, with the life insurance index 3.28% weaker.

 

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So will Ingrid end up as the next CEO of Nedbank – seems very likely

How do you get to this conclusion?

Hemphill is getting a bit of a label as a corporate structure strategist/implementer – you only have to look at what he did at Liberty/Standard to see where he is going with this operation. Ingrid was moved from Nedbank to OMSA and too will find that after the splits that she may have no job, hence the assumption that she would take over Nedbank after Brown departs, which he surely will in the next 3 years

Yup. I can see that happening… PE vultures already circling Wealth. AM well on its way to being spun out. Couple of special dividends (and the unbundled Nedbank shares) on their way. What if Plc effectively collapses and becomes *only* EM? (its the only thing left). Hemphill is only 55 in 2018. I don’t buy this ‘I won’t have a role’ business…

End of comments.

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