Old Mutual is breaking itself apart as it is likely to be worth more dead than alive, explains Sky business presenter Ian King.
South Africa’s largest life company, dating back to 1845, it had – as the name suggests – been a mutual company but decided to shed that status in an attempt to expand and become more commercial.
Its flotation handed shares in the business to more than a million former policyholders in South Africa and 180,000 in Zimbabwe.
Old Mutual was one of a clutch of South African companies that, in the late 1990s, moved their primary listing from Johannesburg to London to take advantage of the greater access to capital.
Others included the miners Billiton – now part of Aussie giant BHP Billiton – and Anglo American, the IT services firm Dimension Data and South African Breweries, which embarked on a string of mergers and acquisitions and, as SAB Miller, went on to become the world’s second largest brewer.
The end of apartheid in South Africa played a key part in this process. All of these businesses had been isolated as a result of the international boycott of the country but, as trade barriers came down, the boards of all these businesses realised they would soon be exposed for the first time to the blast of international competition and would need to bulk up accordingly.
All five entered the Footsie but ‘Old Mutt’, as it was referred to in the City from the word go, kept the lowest profile – although it has been involved in sponsoring England Rugby and was the Zimbabwe cricket team’s shirt sponsor on its most recent tour of England in 2003.
The business had been in the UK for longer than that, having bought the life assurance company Providence Capitol back in 1986, the stockbroker Capel-Cure Myers in 1997, and the famous old Birmingham-based stockbroking firm Albert E Sharp in 1998.
Further acquisitions followed after the flotation, the biggest of which was the £3bn takeover in 2002 of Skandia, the Swedish life company. The aim was to diversify and reduce the company’s dependence on African markets.
Yet Old Mutual never attracted much of a fan club on the UK stock market. Few of its various businesses, sprawled across 33 different countries, appeared to have much in common, other than being in financial services, while there was little cross-selling between them. And, as is often the case with conglomerates, investors tended to focus more on poor performance at underperforming divisions rather than good performance at the better ones.
The group’s misfiring US life business was a case in point; a $135m write-off there in 2008 proving enough to claim the head of Jim Sutcliffe, who had been Old Mutual’s chief executive for all but five months of its first eight years as a London-listed company.
By now, calls for a break-up of the business were growing, but Mr Sutcliffe’s successor, the former finance director Julian Roberts, resisted the pressure for radical surgery. Instead, he embarked on a piecemeal sell-off of smaller assets, most notably the US life business but also big chunks of Skandia.
It was left to his successor, Mr Hemphill, to decide something more radical was needed. In 2016, he announced plans for a four-way break-up.
The sale of part of Old Mutual Wealth is the first stage of this. The sale of Old Mutual’s New York-listed US asset management business is also well under way. A 25% stake is in the process of being sold to a Chinese investor, HNA, leaving Old Mutual with just 6% of the business.
That will leave Old Mutual Emerging Markets, a South Africa-based life business, which will be listed as a separate company, and the group’s 54% stake in Nedbank, South Africa’s fourth-largest bank, which will eventually be lowered to 20%.
Mr Hemphill will have eventually put himself out of a job.
However, if the break-up confirms, as many suspect, that Old Mutual is worth more dead than alive and crystallises value for shareholders, he will leave with their blessing.
And, at the age of just 54, he will be in pole position for another top job in the financial services sector. – SkyNews