Old Mutual faces tussle with Mutual & Federal mino
Old Mutual faces tussle with Mutual & Federal minorities
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Financial Services Correspondent
THE backlash over Old Mutual's offer to minorities of Mutual & Federal suggests a tussle could be looming between the life assurer and South African investment companies, which may yet force Old Mutual to up the offer.
Old Mutual, currently grappling with a major headache in its stuttering banking subsidiary Nedcor, is facing strong opposition from institutional investors Investec and Stanlib in its attempt to get 100% control of Mutual & Federal.
The two asset managers slammed Old Mutual for trying to get an asset on the cheap by offering R17,50 a share for the 12% owned by Mutual & Federal minorities. This is below the R18,20 at which the share began trading on the JSE Johannesburg Securities Exchange SA yesterday and at the bottom end of analysts valuations.
According to section 311 of the Companies Act, 75% of the minority shareholders need to agree to the offer.
The problem is that Old Mutual has already got the 75% support it needs by virtue of the fact that it is buying British insurer Royal & Sun Alliance's 37% stake and Royal & Sun has pledged to vote in Old Mutual's favour.
Aggrieved minorities feel Old Mutual is using bully-boy tactics to push this deal through, as the deal with Royal & Sun makes minority acceptance a foregone conclusion.
Old Mutual finance director Julian Roberts argued during a conference call that the Mutual & Federal shares were very illiquid and the share had actually performed at about the R15 to R16 mark over the last three months.
"We believe the minorities are getting a fair deal even though this is below the share price today," he said yesterday.
If the deal is accepted, it will take Old Mutual's shareholding to 88%. And, with only 12% left in the hands of minorities, Mutual & Federal will be in breach of JSE rules that specify at least 20% of the shares should be in the free float.
The deal was sparked by Royal & Sun's desire to get out of its noncore business.
Royal & Sun CEO for international business, Simon Lee, says: "Given the point reached in the South African underwriting cycle (for short-term insurers) and the volatility in the currency, now is the right time to bring (this relationship) to a close."
But there are a few more chapters to be written before the deal is signed and sealed. There are a number of scenario's which could dictate how the minorities act.
Old Mutual said yesterday that a committee would be set up which would give a mandate to an independent bank (not Nedcor in other words) to assess whether the offer was fair and reasonable.
This fair and reasonable assessment may yet force an increase in the offer but if not, the minorities have a few other options under section 311. That section stipulates that the high court must sanction the scheme and unhappy shareholders could approach the court to argue against it.
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