| Fri 6 Aug 2010, 8:01 | | OML - OLD MUTUAL Plc - Old Mutual sells US Life operations for $350 million |
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OML
OLOML
OML - OLD MUTUAL Plc - Old Mutual sells US Life operations for $350 million
OLD MUTUAL plc
Issuer code: OLOML
JSE Share code: OML
NSX share code: OLM
ISIN: GB0007389926
("Old Mutual")
Old Mutual sells US Life operations for $350 million
Old Mutual plc ("Old Mutual" or "the Group") announces today that it has agreed
terms to sell its US Life operations to affiliates of Harbinger Capital Partners
LLC ("Harbinger") for a consideration of $350 million (GBP220 million at a
$1.59:GBP exchange rate). Completion is anticipated on or after 31 December 2010
and is subject, inter alia, to relevant regulatory approvals.
The financial impact of the transaction is expected to be an increase in MCEV of
GBP718 million or 13.2p per share and an IFRS net asset write off of GBP689
million or 12.7p per share based on the Group`s unaudited financial statements
as at 30 June 2010.
After the expected adjustment based on statutory capital at completion and costs
of the sale process, estimated net proceeds are $364 million. Proceeds will be
paid in two tranches in accordance with the sale contract, the final payment to
be made 6 months after closing. The disposal will also permit the redeployment
of capital from the associated captive reinsurance company.
Net proceeds will be applied to reduce Group net debt in accordance with the
Group`s stated debt reduction target.
The transaction results in a significant reduction in the Group`s exposure to US
credit markets, and a corresponding reduction in economic capital at risk.
Whilst the final impact on Group FGD surplus will depend on the final net
receipts from the transaction, the reduction in Group FGD surplus is estimated
to be approximately of GBP0.1 billion. The disposal will materially reduce the
future volatility in the FGD capital at risk, particularly in extreme stress
events.
Julian Roberts, Old Mutual Group Chief Executive said "I am delighted to
announce the sale of our US Life business. This deal marks further progress
towards our strategic objectives of simplifying the Group, lowering our risk
profile and improving our returns on equity".
Philip Falcone, CEO of Harbinger Capital Partners, said: "The purchase of Old
Mutual`s U.S. business is an attractive proposition. As a result of our
extensive review of Old Mutual`s U.S. business, we believe the company is well
capitalized to meet its obligations to policyholders. We expect to realize
substantial returns from continuing business improvements and Harbinger`s
ability to enhance the value of the asset portfolio. In addition, we are
fortunate to have Leland C. Launer, Jr. on board to serve as Chairman and CEO of
this business. As a former Executive Vice President and Chief Investment Officer
of MetLife, Inc., Lee is one of the industry`s most experienced and respected
executives to take the company forward."
Background to the Transaction
Old Mutual announced its intention to explore the sale of its US Life operations
as part of its strategic review on 11 March 2010. Having delivered a business
improvement programme and in anticipation of likely consolidation in the US life
industry, Old Mutual determined that a sale of the business was in the best
interests of its shareholders and commenced a formal sale process.
Transaction details and impact on Old Mutual
- Sale price of $350 million cash upon completion, subject to a purchase price
adjustment for capital movements between 31 December 2009 and closing, and on
the finalisation of terms for an associated reinsurance transaction.
- Up to $125 million of the purchase price will be held in escrow for 6
months after closing as part of an asset protection agreement in which
Harbinger is protected against any loss incurred on sale of certain credit
instruments for less than book value. At 30 June 2010 the book value of
these assets was $542 million and the market value was $506 million.
- In addition the transaction will allow the redeployment of approximately
$115 million of capital from OM Re, an Irish reinsurance captive which will
continue to be owned by Old Mutual.
The impact of the transaction is expected be an increase in MCEV of GBP718
million or 13.2p per share based on the Group`s unaudited financial statements
as at 30 June 2010, when MCEV for the US Life operations stood at negative
GBP387 million. The transaction is expected to result in an IFRS net asset value
write off of GBP689 million or 12.7p per share based on the Group`s unaudited
financial statements as at 30 June 2010, when IFRS net asset value for the US
Life operations stood at GBP933 million. The transaction requires approval of
State insurance regulators in Maryland and New York and usual completion
mechanics. These are expected to be completed on or after 31 December 2010. The
majority of any residual contractual exposure will expire within two years of
closing.
Old Mutual currently finances a total of $775 million of redundant US Life
reserves with a letter of credit. Old Mutual will continue to provide this
financing after closing as follows:
$300 million of redundant reserves on the annuity business (CARVM) will be
financed by Old Mutual through letters of credit from its existing financing
arrangements. This initial requirement will run down significantly over the next
few years and will be refinanced by the purchaser on or before 31 December 2015.
In addition, Old Mutual is working with Harbinger to source market financing for
up to $600 million of redundant reserves on the Universal Life and Term Life
(XXX/AXXX) business. To facilitate this financing Old Mutual will act as legal
guarantor until 31 December 2012 after which point it will be replaced by
Harbinger.
J.P. Morgan advised Old Mutual on the transaction. Bank of America Merrill Lynch
advised Harbinger.
Old Mutual`s US Life operation provides term life and annuities to the US
market. In the year to 31 December 2009 it made an audited IFRS loss after tax
of GBP80 million ($126 million at a $1.57:GBP exchange rate). Its statutory
capital at 31 December 2009 was $819 million.
Harbinger Capital Partners is a leading private investment fund based in New
York with $10 billion in assets under management. The firm was founded in 2001
and employs a fundamental approach to deep value and distressed credit
investing. Harbinger is led by Philip A. Falcone, its Chief Executive Officer,
who has over 20 years of investment experience across an array of market cycles.
For further information on Old Mutual plc, please visit the corporate website at
www.oldmutual.com
Enquiries
External Communications
Patrick Bowes UK +44 (0)20 7002 7440
Investor Relations
Deward Serfontein SA +27 (0)82 810 5672
Aleida White UK +44 (0)20 7002 7287
Media
Don Hunter (Finsbury) UK +44 (0)20 7251 3801
Notes to Editors
Old Mutual
Old Mutual plc is an international long-term savings, protection and investment
Group. Originating in South Africa in 1845, the Group provides life assurance,
asset management, banking and general insurance in Europe, the Americas, Africa
and Asia. Old Mutual plc is listed on the London Stock Exchange and the JSE,
among others.
In the year ended 31 December 2009, the Group reported adjusted operating profit
before tax of GBP1.2 billion (on an IFRS basis) and had GBP285 billion of funds
under management at the year end. The Group has approximately 54,000 employees.
6 August 2010
Sponsor:
Merrill Lynch South Africa (Pty) Limited
Date: 06/08/2010 08:01:02 Produced by the JSE SENS Department.
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