Old Mutual CEO Jim Sutcliffe made it clear on Thursday that the South African financial-services giant has no intention of backing down from its takeover bid for Swedish insurer Skandia, saying the logic for the acquisition remains compelling.
He said the deal would give the combined group a strong foothold in four major markets — South Africa, Sweden, the United States and United Kingdom — with a huge critical mass and embedded value.
According to Old Mutual’s estimates, a successful takeover of Skandia by Old Mutual would create Europe’s seventh-largest insurer in terms of assets under management, equating to £192-billion or about R2,5-trillion.
In terms of embedded value, the merged group would be the eighth largest in Europe at £7,5-billion, or 137 pence per share.
“And of course, financially the company would be robust with prospects for a bigger return to shareholders than at the moment, ” Sutcliffe said.
Sutcliffe’s comments came in the wake of a letter apparently sent to Old Mutual’s shareholders by the Skandia board, charging that the offer was hostile and lower than what Old Mutual had originally offered for the Swedish insurer.
Old Mutual is offering Skandia’s shareholders 1 650 Swedish kroner in cash and 137 new Old Mutual shares for every 100 Skandia shares held — equating to about R38-billion.
The offer is conditional on obtaining 90% or more of Skandia shareholder support, although Old Mutual retains the option of lowering this threshold in the future.
Old Mutual is confident that the bid will succeed. To date, shareholders representing just more than 15% of Skandia’s shares in issue have come out against the transaction.
“Broadly speaking, we’ve also had a pretty good response from our shareholders,” Sutcliffe said. He intimated, however, that there are some South African shareholders that feel the price is too high.
Old Mutual shareholders will vote on the deal on November 14. The offer to Skandia shareholders closes a week later, on November 21.
Sutcliffe said there is great growth potential for a merged group, with favourable demographics supporting Old Mutual’s case. There is a basic drive in the economies of Europe to save for themselves, with widespread pension reform encouraging private pensions. An explosion in US mutual funds also highlights the scale of opportunity that existed, he said.
Skandia would also benefit from South Africa’s IT capabilities.
Sutcliffe concluded that Old Mutual has a track record of adding value. For instance, its US life sales have increased from $1,2-billion to $4-billion in the past few years and Old Mutual Bermuda’s monthly sales are up from $10-million to $50-million, while the group’s US management has had five years of strong net fund inflows.
“Old Mutual has built sustainable, organic growth momentum. The acquisition of Skandia brings broader opportunity on which to build that momentum.”
He expected that the merger, if it goes ahead, would be relatively seamless.
“It’s not a case of two large companies smashing together. There’s not a lot of overlap, so there’s not a lot of integration to be done,” Sutcliffe said. — I-Net Bridge