Old Mutual to split into four units to unlock value

Several private equity firms are reported to be interested in acquiring Old Mutual’s wealth division.

Old Mutual has decided to split into four separate units following a strategic review instigated by chief executive Bruce Hemphill, who took over the Anglo-South African insurer in November.

The business, which is dual listed in London and Johannesburg, will split into South Africa-headquartered Old Mutual Emerging Markets, UK based wealth manager Old Mutual Wealth, South African bank Nedbank and US-based asset manager OM Asset Management.

The separation is expected to be materially completed by the end of 2018, according to a statement.

“The strategy we have announced today sets out a bold new course to unlock value currently trapped within the group structure,” Hemphill said in the statement.

“We have four strong businesses that can reach their full potential by freeing them from the costs and constraints of the group.”

Hemphill added that the 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”.

In a webcast on the insurer’s website, Hemphill said that the previous strategy to de-risk the group had led to Old Mutual trading at “a substantial discount to its peer group and to its sum of the parts value”. He said there was “very little commonality” between the four business units and “limited rationale” for keeping them in one group.

“It’s a costly structure with insufficient synergies to justify those costs.”

In its full year results for 2015, the firm reported a 4 percent rise in annual pre-tax adjusted operating profit to £1.7 billion (€2.2 billion; $2.4 billion) and a second interim dividend of 6.25p flat versus the prior year, with a total dividend of 8.9p, up 2 percent.
A results presentation shows that Old Mutual Emerging markets generated £615 million in operating profits in 2015, while Nedbank generated £754 million, Old Mutual Wealth generated £307 million and Old Mutual Asset Management contributed £149 million.

Several private equity firms have expressed interest in acquiring Old Mutual Wealth, according to media reports.

Hemphill said in the statement: “There is likely to be a range of external influences on future group reported earnings including slower economic growth, exchange rates and equity market volatility and how we execute the managed separation.”

In the webcast, Hemphill said there are a “number of different routes” to achieve the separation, and that when it was complete “the businesses will be delivering enhanced performance relative to their peers and they will be held by their natural shareholder base”.

“The conglomerate discount will be removed and there will be simpler regulatory arrangements.”

Old Mutual shares were trading down 2.48 percent at 180.70 at 12:22 on Friday, giving the insurer a market capitalisation of £8.86 billion.