Johannesburg - Old Mutual plans to separate its four units as Chief Executive Officer Bruce Hemphill breaks up the UK financial services company to reverse years of flagging returns.
The insurer will separate OM Asset Management, its controlling stake in South African lender Nedbank, its UK wealth business and the emerging-market business run out of South Africa by the end of 2018, London-based Old Mutual said in a statement on Friday. The separation will be done in a way to maximise value to shareholders and give the different businesses more room to expand, it said.
The breakup culminates a strategic review started by Hemphill after his appointment in November as the 171-year-old company’s main South African operations come under pressure amid slowing economic growth and a depreciating local currency. A split makes sense as Old Mutual trades at a discount to the combined value of its different units, which have few synergies between them, said Risto Ketola, an analyst at SBG Securities in Johannesburg.
“Our new strategy will allow each business to have simpler access to capital markets to fund its growth more easily and be valued more appropriately, with more straight forward regulatory arrangements,” Hemphill said in the statement. “These businesses are performing strongly, have excellent competitive positions in sizable markets and the underlying growth potential to flourish independently.”
Old Mutual’s return on equity, a measure of profit, has declined since the company moved its head office to London from Johannesburg in 1999 to escape foreign exchange laws that made it difficult to pursue acquisitions outside the country. With the move also came increased regulation and Old Mutual must now follow solvency rules. The London-listed securities have increased just 23 percent since they started trading compared with an almost tripling in the South African shares over the period.
Old Mutual’s top two executives are South Africans. Hemphill was previously the head of wealth and insurance at Standard Bank Group, Africa’s biggest lender by assets, which last year sold a controlling stake in its UK operations after increased regulation tied up capital and caused costs to rise. Old Mutual Finance Director Ingrid Johnson spent 20 years with Nedbank before joining the lender’s parent in 2014.
Old Mutual also released full year results to December and net income rose 4.8 percent to 945 million pounds ($1.34 billion) from 902 million pounds a year earlier, the company said in the statement. Adjusted operating earnings per share gained 8 percent on a reported currency basis to 19.3 pence, beating the 19.1 pence median estimate of 10 analysts surveyed by Bloomberg.