Nedbank’s parent to reduce stake from 54% to 19.9% as part of Managed Separation

JSE-listed Nedbank Group Ltd announced today that its parent company, Old Mutual plc, would maintain a strategic investment of 19.9% in Nedbank Group to underpin ongoing commercial relationships between the two companies after completion of the Old Mutual Managed Separation.

Old Mutual (OM) plc, the London-listed entity, reported on 11 March 2016 that it would be separating its four businesses – Old Mutual Emerging Markets (OMEM), Nedbank Group, Old Mutual Wealth and OM Asset Management – into standalone entities, as the costs and regulatory burdens of the current structure outweighed the benefits and long-term interests of Old Mutual shareholders. As part of this announcement, OM plc stated it would reduce its controlling stake in Nedbank Group to a strategic minority through an unbundling at an appropriate time, and in an orderly manner.

The 19.9% strategic investment will be held by Old Mutual Limited (OML) – the new South African holding company that will also house OMEM and remainder of OM plc – which is expected to list on the JSE in 2018 at the earliest opportunity following OM’s 2017 full-year results announcement, with a secondary listing on the London Stock Exchange.

Speaking at the Old Mutual Limited Investor Showcase today at Nedbank’s Head Office in Sandton, Nedbank Group Chief Executive Mike Brown said: “The Old Mutual Managed Separation strategy has been well received by all Nedbank stakeholders and the anticipated change in shareholding will not affect the bank’s strategic direction, day-to-day operations, or ability to continue on its growth path.”

He explained that the two companies were already independent, with separate technology systems, brands and businesses. “We are a listed entity with an independent board, which makes the formal separation of our businesses through the unbundling a relatively straightforward shareholder process that will have no impact on our clients, staff, suppliers or business partners.”

Brown shared a stage with the Old Mutual plc and Old Mutual Limited leadership who gave an update on the managed separation journey and an introduction to the OML entity expected to list on the JSE from which the Nedbank shares will be unbundled.

He said Nedbank had strong foundations that were important in the current political and economic environment, but was also well positioned to grow, with the bank set to become a “more vibrant, independently-held business, with Old Mutual as a strong strategic minority shareholder and business partner”.

Nedbank and Old Mutual enjoy a constructive relationship based on high levels of collaboration, synergies and value creation.

Nedbank has for many years produced and distributed most its own simple bancassurance products independently of Old Mutual, while collaborating with its parent company for the delivery of more complex insurance products. Old Mutual operates predominantly in the investment, savings and insurance industry, which has limited direct overlap with banking.

Nedbank and OML will continue to compete in areas such as wealth management, asset management and personal loans. This is “healthy competition” that would ultimately benefit clients, said Brown, and not detract from the commitment shared by Nedbank and Old Mutual to seek opportunities to unlock synergies in other areas.

Speaking at the same investor showcase, Nedbank Group Chief Financial Officer, Raisibe Morathi echoed Brown’s positive sentiments, pointing to Nedbank’s competitive market position as a solid foundation on which Nedbank would continue to grow before and after the Managed Separation.

“OML’s planned reduced shareholding in Nedbank is positive in that the increased free float position has the potential to enhance our share liquidity, thereby attracting a broader, more diversified shareholder base comprised of natural emerging market shareholders,” Morathi explained.

Morathi stated that Nedbank had remained resilient despite the ongoing challenging macroeconomic environment and expected over time to continue to improve the bank’s key performance indicators such as return on equity and efficiency ratios.

Wrapping up the Nedbank presentation, Brown said Nedbank had strong domestic franchises and compelling growth prospects both domestically and on the African continent. “Our Rest of Africa franchise, for example, provides a strong growth opportunity, particularly in 2018 as our share of ETI (Ecobank Transnational Incorporated) profits should normalise after a difficult 2016 and 2017 and provide a boost to Nedbank’s earnings growth.