Belinda Beresford
With Sanlam, the bastion of Afrikanerdom, and Metlife, the embodiment of black empowerment, set to disappear from South Africa’s financial markets, will the new joint venture mean the end or the beginning of black empowerment in South Africa?
Sanlam and New Africa Investment Limited’s (Nail) life assurance subsidiary, Metropolitan Life (Metlife), are due to merge in terms of a memorandum of understanding signed by the two parent companies last week.
The deal has been punted by some as a blow to black empowerment, which has been taking something of a drubbing. Black control of the Johannesburg Stock Exchange (JSE) slipped to 3,8% in early 2000 from a peak of 6% in April 1999, according to consultancy BusinessMap.
Nail’s involvement in Metlife stems from a 1993 deal that saw Sanlam sell the smaller life assurance company cheaply to a previous incarnation of Nail.
Metlife has been a steady source of profits for the black empowerment company, which has been restructuring after a traumatic period that included the hasty departure of a number of Nail’s directors after a furore about a share option scheme.
Nail is now a more focused financial company, having ditched a string of other assets. Nail directors touted the shake-up as an attempt to focus black empowerment on management control – as opposed to artificial schemes designed to boost black share ownership.
While details of the transaction have yet to be finalised, it appears that Nail will be the largest shareholder in the new company, “Newco”, with a 14% stake.
One Nail source said the company had consulted widely about the deal, and had even held discussions with President Thabo Mbeki. In general there has been broad consensus that “black economic empowerment as we know it has to be rescued.
“The structure of the deal will give us enough power on the board. We will have parity on the board and in top management,” the Nail source said.
The deal could also be viewed as answering criticism that empowerment to date has simply benefited a relatively small elite of black business people.
“We want to see a situation where black economic empowerment is being defined in terms of empowering the majority by training people and skills transfer. [It is] an attempt to move away from the model of a lot of paper shuffling at the top and a few individuals getting the benefit without it trickling down.”
It is widely acknowledged that difficulty in attaining capital is one of the biggest problems facing black economic empowerment companies, which led to the use of complicated – and potentially costly – financial instruments that have been blamed for the poor performance of empowerment companies.
The Sanlam/Nail deal has been under discussion for about a month. Nail is hoping the agreement will be finalised by the end of August, which is when it has committed to end its use of N-shares. These controversial shares allowed black empowerment companies to have voting rights disproportional to their capital input but are disliked by investors.
Although the details have yet to be agreed, it is understood that both Sanlam and Metlife will disappear from the JSE, to be replaced with “Newco”. Nail will remain a listed entity continuing to look after its other interests. The Metlife and Sanlam brands will continue to exist.
Although still to be decided “Newco” will have a name “reflecting the new South Africa”.
It is understood that one possible scenario is for Nail head Dikgang Moseneke and Sanlam CEO Marinus Daling to be co-chairs, with an outsider being brought in as CEO.
One of the major criticisms of black empowerment has been the creation of “Oreo” companies which are “black on the outside and white on the inside”.
Maybe the new Sanlam/Metlife giant will be, as some have predicted, a life-saving measure rescuing some of the dignity of black empowerment while giving an acceptable face to Afrikaner business. But alternatively it could mark the beginning of black empowerment colonisation of the pillars of old-order business, and the renaissance of true economic empowerment.