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Monday, March 1, 1999
Demutualisation with a difference

Old Mutual might have been anxious to announce plans for demutualisation first, but its careful preparations and strategy have meant it has ended up following in Sanlam’s footsteps in putting words into action. Together the two die-hard mutuals should account for a total of 6% of the JSE’s total market capitalisation — but, for Old Mutual its listing is with a difference.
Coming second has allowed it to observe the way Sanlam’s listing proceeded. One decision coming out of that experience has been a request — now granted — that Old Mutual list, primarily on the London Stock Exchange. Old Mutual is also lobbying policyholders to advise if their intentions are to sell their prospective shares, offering to handle the sale of such shares free of the usual costs. Sellers will receive the listing price, before trading begins. The aim will be to soak up shares to avoid the steady stream of sellers that undermined Sanlam’s initial market trading.
Eligible policyholders
Most eligible policyholders of Old Mutual (some 3,2m) have received their certificates indicating the numbers of shares to which they are entitled, based on their policy portfolio as at 25th September 1998. Most policy- holders will receive a minimum of 300 shares valued, according to estimates last December, at between R11 and R14 each. In terms of the free share allocation, they receive:
• 200 shares (regardless of the number, size or type of your policy; plus,
• an extra number of shares depending on the nature and value of policies held as at 31st December 1997 comprising:
• one share per R300 of actuarially determined value of each policy (with profits and non-profit); and,
• one share per R100 of the actuarially determined value of the with-profit part of policies.
• The total is then rounded up to the nearest 100 shares.
A total of 2,6 billion shares will be allocated to qualifying members. In addition, ‘qualifying employees’ will receive 300 shares, defined as full- time employees, pensioners who retired from Old Mutual, and full-time employees of subsidiaries, including companies such as Central Africa Building Society, Mutual & Federal Insurance and Nedcor.


Old Mutual will pay the 2,5% demutualisation levy on the members’ and employees’ allocations.
A further 75 million shares will be allocated to Old Mutual Foundations established in Bermuda, Malawi, Namibia, South Africa and Zimbabwe. These foundations, however, will pay their own tax levies.
In total, approximately 3,5% of shares allocated to qualifying members (equivalent to R0.38 cents a share) are being donated in this way to employees, pensioners and foundations. A further R0.23 cents per share, or 2% of the estimated value of the shares will be lost in covering the costs of demutualisation and listing, estimated at R700m.
After five years, any shares not claimed by policyholders will be sold for the benefit of Old Mutual plc. Note that ‘plc’ means ‘public limited company’ in terms of UK company law. Old Mutual will be listed on the London Stock Exchange, as its ‘primary listing’ (see diagram), with an estimated market capitalisation of be- tween R33 billion and R41 billion.
The company will also be listed on the stock exchanges of Johannesburg, Harare, Windhoek, and Blantyre.
The government sanctioned the primary listing in London due to ‘the sheer size’ of the deal and concerns that there would not be sufficient demand for shares locally. In order for the company to fulfill UK regulatory requirements it had to restate its financial figures, and therefore reported a R4,4 billion loss for the year to June 1998. This arose through a R6 billion write-off of goodwill, reduced by an operating profit of R2,4 billion for the year. The write-off followed the transfer of its controlling stake in Nedcor from policyholders to shareholders.
Mike Levett, chairman and group chief executive, comments, “This will be an historic event, a massive economic empowerment exercise for 3,2m members and their dependants. As well as creating substantial value for our members, the demutualisation proposal will bring enormous benefits to both Old Mutual and to Southern Africa as a whole.”
In August 1997 the Board of Directors announced its decision, in principle, that Old Mutual should demutualise and list, subject to the approval of members and the appropriate authorities.
The demutualisation proposal aims to meet the following objectives:
• Create sufficient flexibility for Old Mutual to grow in a rapidly changing competitive environment;
• Enter international markets, and externalise earnings;
• Enable Old Mutual to raise new capital efficiently when needed to fund its growth, and in particular at better rates than in South Africa;
• Spread risks round more markets;
• Unlock sufficient value for members; and
• Maintain security for policyholders.
Board of directors
If the proposal is approved, the Board of Directors of Old Mutual plc will be chaired by Mike Levett. Eric Anstee will be the Finance Director. Three non-executive directors of the society, Warren Clewlow, Peter Joubert and Chris Liebenberg, will be appointed to the Board. In addition, three or more independent non-executive directors will be appointed to the Board of Old Mutual plc.
The proposal needs to be approved by at least 75% of the votes cast by the members, and by the High Court of South Africa, before demutualisation can be implemented. In addition, the transfer of businesses must be approved respectively by the court in Bermuda, by the Registrar of Insurance in Namibia and by the Ministers of Finance in Malawi and Zimbabwe, for the proposal to be effected in the relevant territory. Approvals will also be sought from the Director of Insurance in Guernsey and the Commissioner of Insurance in Hong Kong.
Meanwhile, it is reported that the Financial Services Board (FSB) is investigating an Old Mutual share incentive scheme that will benefit executives. The scheme’s funds are in two unlisted companies holding two Old Mutual endowment policies. They were worth a combined R218m June 1998, according to newspaper reports. Upon listing, Old Mutual’s executives would be allowed to convert ‘their entitlements’ to shares. Information on the matter appears restricted, which is what is worrying the FSB. By Nigel Benetton
Diary
Planned timetable for demutualisation and listing is:
Postal voting was to close 3rd March 1999, and personal voting at a Special General Meeting in Cape Town on 11th March.
High Court hearing (South Africa): March/April 1999
Planned listing mid-1999, subject to market conditions.
Demutualisation Information centre:
Individuals: 0800 60 9000
Organisations: 0800 00 1313
Monday to Friday 7 am — 8 pm, Saturday 8am — 1pm.

Copyright © Insurance Times and Investments® Vol:12.2 1st March, 1999
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