Swedish insurer Skandia, the target of a R38-billion takeover bid by South Africa- and United Kingdom-listed financial-services group Old Mutual, on Wednesday unveiled to shareholders details of a plan that would allow it to remain independent. It also gave hard-hitting reasons why shareholders should reject the Old Mutual offer.
Skandia’s board of directors rejected the offer in a divided decision on September 23. Since then, shareholders representing just more than 12% of the insurer’s shares in issue have come out against the offer as well. The offer is conditional on acceptance from 90% of Skandia shareholders.
The management of Old Mutual have continued to express confidence that it will receive the 90% acceptance level, saying it has received positive feedback from major Skandia shareholders and there is plenty of time for shareholders to change their minds before the November 21 deadline. However, the company has retained its right to waive the offer.
Dubbed the “Turbo Plan”, Skandia’s proposals published on Wednesday and sent to shareholders are aimed at delivering 1,2-billion Swedish kronor of increased profits per year over the next five years. The plan, which was approved by the Skandia board in May, is already being implemented, management said.
Lennart Jeansson, chairperson of Skandia, commented: “The Old Mutual offer is insufficient to compensate shareholders for surrendering control of a business with such compelling and attractive growth prospects to create shareholder value.
“We believe that Old Mutual’s offer is inadequate and we advise shareholders to reject this offer and to support Skandia’s management team in delivering their standalone plans.”
Hans-Erik Andersson, president and CEO of Skandia, echoed this sentiment, saying: “I strongly believe that Skandia has tremendous opportunities to create value in the years to come. We have a highly attractive and well-performing group of businesses operating in growing markets, we have the plans to improve performance further, and we have the management team and dedicated employees to deliver on these plans.
“Skandia is a niche player in the long-term savings market, with a focus on customer service and product development. We are convinced that our compelling product portfolio and customer proposition will strengthen our position further in this market as a stand-alone company.”
‘Wrong time to sell’
The document sent to Skandia shareholders stressed that it is the wrong time to be selling the company, given its strong growth potential, particularly over the next two years. The company has undergone significant changes, having restored its focus on profitability and improved governance.
The group has delivered on its ambitious programme from 2002 to 2005 and continues to do so, the board said, and the management expects this to deliver strong growth in embedded value and improving returns.
As a result, the document pointed out, Skandia management does not believe the Old Mutual offer reflects these growth opportunities. It represents only a 5,5% premium to the group’s share price adjusted for market movements, which is unacceptable in an industry where premiums of between 25% and 40% are the norm.
The company also claimed Old Mutual is overstating the value of its offer by including in its calculations its interim dividend. There is also a risk that, because 60% of Old Mutual’s offer is in the form of Old Mutual shares, market performance and a long completion period could further reduce the premium.
Old Mutual’s businesses face various “unattractive” risk exposures that Skandia’s shareholders might want to avoid, the group said, particularly its insurance business. Its shares are exposed to markets with a more uncertain outlook and it may be subject to significant currency and other risks.
Attempting to counter Old Mutual’s previous statements, Skandia said the proposed combination lacks strategic land industrial logic, while the synergy proposals could be overstated. The tax synergies could also be outweighed by tax inefficiencies and opportunity costs.
Old Mutual is offering Skandia shareholders 1 650 Swedish kronor in cash and 137 new Old Mutual shares for every 100 Skandia shares held.
The offer is valued at 43,60 Swedish kronor per share or an aggregate consideration of 45-billion Swedish kronor (£3,3-billion). It represents a premium to the market price on May 12 (when the offer was initially discussed) of 25%.
According to Old Mutual’s estimates, a successful takeover of Skandia by Old Mutual would create Europe’s eighth-largest insurer by embedded value at £7,5-billion or 137 pence per share, and the seventh largest in terms of assets under management at £192-billion.
Its market capitalisation would come in at about £7,9-billion, depending on the share price, placing the company at about number 35 on London’s FTSE. — I-Net Bridge