Sarah Bullen
A week is all the time Old Mutual policyholders have to notify the company if they are going to hold on to their free demutualisation shares, or sell them for an instant injection of cash. The decision has to be made by June 25.
The three choices of those facing a windfall have been clearly spelled out by Old Mutual in communication with its 3,2- million policyholders: sell the free shares and pocket the cash, sit tight and hold on to the stock, or buy more in terms of a pre-listing offer subject to a minimum investment of R10 000.
The choice is an uneasy and early one for policyholders because Old Mutual is asking them to make it without knowing the price they will get for their shares should they choose to sell now.
The deliberate mechanism of control over its offer price is being conducted as a book-building exercise. The process involves matching sellers – the policyholders opting for the quick cash – and buyers who will submit tenders for the stock.
Last Friday, Old Mutual again set its updated estimated range at between R11 and R14 a share, and hinted at early indications of interest from investors. Most economists polled are putting their money on the offer price coming in at the low end of the R11 to R14 range.
The experts are quick to point out that there is no right or wrong choice, but rather a process of identifying if you need the money now – or if you are prepared to wait. The consensus is clear, if you have debt, sell now and reduce the existing burden.
Economists recommend that a policyholder wanting to sell should sell in the book- building phase, rather than later in the market. Firstly you are guaranteed of getting the base price to be announced on the listing day, July 12. More importantly, however, selling into the book-build will cut out a commission that will be incurred if you sell later through a broker. It is quick, clean and you walk away with a tidy sum.
While selling in the book-build will give policyholders the base price, thereafter it is up to market conditions to determine where the price will sit. By holding on to the shares with a view to selling them at a later stage, the policyholder is banking on the price rising above the offer price. And policyholders that witnessed Sanlam’s share price dip should take heed that the risk is a real one.
While Old Mutual’s listing prospectus and strategy has not been dictated to by Sanlam’s depressed listing last year, it has certainly informed it of the pitfalls to avoid.
Old Mutual’s primary listing in London is going to open it up to a far larger pool of money and investors than Sanlam’s African listing allowed.
Secondly, Old Mutual is neatly sidestepping what emerged as a clear mistake in Sanlam’s listing in offering policyholders additional discounted shares. This will cut out the inevitable “stagging” that allowed policyholders to make instantaneous profits by selling almost immediately, while flooding the market with the stock.
Old Mutual will require a listing of around R12 a share if it hopes to make it into the FTSE-100 index. Inclusion in the FTSE would give the new company a significant boost as tracker funds pick up stock to mirror the index.
The next meeting by the index compiler FTSE International is only in September. Market indices are rejigged every quarter on the basis of which stocks have the biggest market capitalisation, leaving the company to rely on its own strength, and the whims of the market until that date.