Insurance group Momentum, part of the listed FirstRand group, has made an offer of 175 cents per share to acquire all of rival insurer Sage, in a transaction worth R634-million, the companies announced on Friday.
The payment will comprise an initial payment of 142 cents per Sage share and a subsequent potential maximum payment of 33 cents per Sage share. If the offer is successful, Sage will be delisted from the JSE Securities Exchange.
Sage has been struggling under a substantial debt burden built up while trying to finance its ill-fated United States operations, which the company finally sold off more than a year ago.
Momentum will acquire all of the Sage shares apart from those held by Sage Life. The offer equates to approximately 80% of Sage’s published embedded value on December 31 2004.
Outlining its rationale for the bid, Momentum said South Africa’s insurance industry is currently undergoing consolidation, driven by the need for increased geographic coverage and distribution capability, comprehensive product offerings and economies of scale in administration.
Sage Life and Momentum serve similar target markets, which provides a strategic opportunity for the combination of the two life insurers and their asset-management operations.
The combined entity will enjoy an enhanced market position in its target markets and comprehensive geographic coverage of South Africa. The scheme will add to Momentum’s distribution capabilities and enable Momentum to fast-track its strategy to grow its agency force.
Momentum currently commands about a 12% share of the South African life-insurance market, it said, while it only has a relatively small presence in the market segment serviced by agents. The acquisition of Sage will treble its agency force.
Sage, meanwhile, has investigated and pursued a number of alternative methods by which to settle its outstanding debt obligations, culminating in the transaction.
“Given this background, Momentum is open to acquisition opportunities that will complement its growth initiatives,” said Hillie Meyer, MD of Momentum. “The acquisition of Sage will substantially improve Momentum’s new business pricing competitiveness and will unlock value from both Momentum’s and Sage’s existing books.
“The main value drivers are the improved administration efficiencies and the increased assets under management. While Momentum is already regarded as a leader with regard to the efficient use of capital, this acquisition will enable us to further leverage Momentum’s capital base,” he concluded.
Added Laurie Dippenaar, CEO of FirstRand: “This acquisition is value enhancing to both Momentum and the FirstRand group. Not only does the acquisition effectively utilise the existing capital and capacity resources of Momentum, [but] it also provides exciting growth opportunities through an enhanced distribution network.
“This will enable Momentum to continue to deliver strong returns for FirstRand.”
The scheme is subject to several conditions precedent, including regulatory approvals, competition-authority clearance, approval from the requisite majority of scheme members, and Sage lenders agreeing to the extension date for repayment of outstanding loan facilities to October 31 2005. — I-Net Bridge