Bloomberg News

Old Mutual Special Dividend May Top 15 Pence on Unit Sale

December 28, 2011

(Updates with company comment from fourth paragraph.)

Dec. 22 (Bloomberg) -- Old Mutual Plc, the third-biggest U.K. insurer, may pay a special dividend of at least 15 pence per share and its shares could rise next year following the sale of Nordic units, according to Risto Ketola, an analyst at Standard Bank Group Ltd.’s SBG Securities.

“We argue for a 15 pence, or 2 rand, special dividend and that remains our view,” Ketola said in an e-mailed response to questions on Dec. 21. He commented following the sale of Old Mutual’s Nordic unit to Skandia Liv for 2.1 billion pounds ($3.3 billion) and its disposal of the Finnish unit of Skandia Life Assurance Co. Ltd. to Finland’s banking co-operative, the OP- Pohjola Group, for an undisclosed amount.

Ketola increased his 12-month price target to 190 pence, with the insurer having traded at 111 pence on Dec. 14, the day before the Skandia Liv deal was announced. The shares rose 1.9 percent to 132.7 pence at 10:11 a.m. in London trading today.

Of seven analysts surveyed by Bloomberg, the mean estimate for a special dividend was more than 17 pence, with the highest forecast almost 27 pence. Old Mutual’s price could rise to 200 pence per share, according to the highest of the 12-month price targets by seven analysts in data compiled by Bloomberg. The mean price estimate is 162 pence, a level the insurer hasn’t seen for four years.

Old Mutual will update the market on the special dividend in a circular in February, spokesman William Baldwin-Charles said by phone today, without disclosing details on the size of the payout.

London Listing

Old Mutual, Africa’s largest insurer, moved its primary listing to London in 1999 as part of a plan to expand globally. In the past decade the 166-year old company opened businesses in the U.K., the U.S., the Nordic region and Asia. Ventures in the U.S. and the Nordic region have since been sold, while Asian expansion has been curtailed. Julian Roberts, who was promoted from chief financial officer to CEO in 2008, aims for the group to pay off 1.5 billion pounds of debt and achieve a return on equity of 15 percent at its units by the end of next year.

Analysts are divided on the size of the special dividend because Old Mutual may have the opportunity to increase its debt repayments following the sales announced this month. Morgan Stanley analysts expect Old Mutual to increase repayments by a further 500 million pounds to a total of 2 billion pounds while Ketola said the insurer is likely to retain debt.

Debt Obligations

“We do not subscribe to the view that Old Mutual will substantially pay down all of its debt,” Ketola wrote in a note on Dec. 17. “We assume Mutual will retain debt of around 1.2 billion pounds which means only 500 million pounds of proceeds from Nordic sale will be used to supplement the existing debt reduction program. Of the remaining cash inflow we expect just over half to be directed to a special dividend.”

Old Mutual will reassess its debt repayment plan, Baldwin- Charles said today. Markets are “uncertain,” he added, echoing institutions like Swiss Life Holding AG and Aviva Plc, the U.K.’s second-biggest insurer by market value, which are conserving capital.

A special dividend will help Old Mutual’s black shareholders in South Africa pay down their own debt, according to Ketola. The insurer financed the sale of a stake in the company to a group of black investors in 2005 as part of the country’s empowerment initiatives, which aim to make up for discrimination suffered during the apartheid era. A decrease in Old Mutual’s debt obligations outside South Africa and excess cash may also prompt further action, analysts said.

Nedbank

Last year, Old Mutual tried and failed to sell its stake in South African lender Nedbank Group Ltd. to the U.K.’s HSBC Holdings Plc to reduce debt. While this may still be part of the insurer’s strategy, “an alternative and now-viable option, and one we found to be favored by the majority of South Africa shareholders on our recent visit, is to dispose of the ex-South Africa businesses and retain Nedbank,” Gordon Aitken, analyst at RBC Capital Markets, wrote in a note on Dec. 15.

Old Mutual is the best-performing stock on the five-member FTSE/JSE Africa Life Assurance Index this year, having risen 31 percent. It is the second-based performing share on London’s eight-member FTSE 350 Life Insurance Index after St. James’s Place Plc.

--Editors: Francis Harris, Keith Campbell.

To contact the reporter on this story: Renee Bonorchis in Johannesburg at rbonorchis@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net Edward Evans at eevans3@bloomberg.net


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