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Good for everyone…

11 August 2005 Angelo Coppola

This as its buys 100% of African Life, including the 34% Momentum stake for R882m or R22.50 per share, with a small string attached...

“This is a compelling deal,” says Johan van Zyl, CEO of Sanlam.

Return on embedded value (ROEV) is the main focus of the business, and they continue to focus on capital efficiency, and a search for new sources of revenue.

To get growth they believe the place to be is in the entry level life insurance market says Van Zyl.

“The Thebe/Safrican joint venture was a start, but we needed more bulk, and African Life, with total assets of R13bn and recurring income of R1.5bn, offered this.

The African Life business is growing and provides an access to a client base that Sanlam is weak in. The deal ensures that Sanlam will have a meaningful presence in the LSM 4 – 7 levels.

The want 100% of the African Life, and Van Zyl says that they have the wide support of all concerned. He quantified this as support from 70% of the shareholders and institutional investors. He wouldn’t be drawn on the number of irrevocable agreements he had.

Momentum will sell their stake to Sanlam, if they can acquire African Life Health, then the price per share increases to R22.50. If the deal doesn’t go through then the price per share deal drops to R22.05.

Sanlam isn’t in the health arena at the moment although there seems to be some interest in getting into that sector.

The sale of the health business to Momentum had to be considered as it added substantial value to African Life shareholders, to the tune of 40 cents per share, says Jeremy Rowse, CEO of African Life.

Hillie Meyer, MD of Momentum: “We have indicated over the last two years that we are sellers of our stake in African Life. We are very satisfied with the transactions we concluded and believe this has resulted in an attractive outcome for all shareholders”.

He was referring to the separate transaction, in which Momentum has made an offer to acquire African Life Health (ALH) from African Life for R175m. “The acquisition of ALH is complimentary to our current strategy and positioning in the health industry,” said Meyer. “ALH has a footprint in market segments where Momentum would like to have a presence, for example local governments, the emerging market as well as Africa.”

Turning back to the main deal, Van Zyl and Rowse says that there should be R300m in terms of potential capital synergies and if the momentum deal goes through, this figure will be closer to R400m.

“It’s a compelling deal,” says Van Zyl.

The African Life perspective according to Rowse, is such that life will remain the primary focus. We will continue to explore the opportunities via the fund management business outside the boarders of SA.

They have a high volume business, with low transaction values – R100 to R150 premiums at a low cost, which happen to be risk dominant products. 65% of the products go to risk related products and the remainder into investment type products.

“We are the biggest payers of benefits in South Africa,” says Rowse. In Africa it is such that the insurance spend as a percentage of GDP is the highest in SA – with double digit percentages, while other African countries are in the lower signal digit percentages.

As an aside Momentum’s desire to exit the African Life business has been common knowledge for two years, and did feature in the transaction rationale, as seen in their (African Life) search for a value added shareholder. Sanlam were also looking for an increased presence in Johannesburg.

In terms of business opportunities Rowse says that bancassurance has particular reference to their business model, and a definite growth opportunity, and something that Sanlam identified.

“African Life will remain a separate strategic business unit,” says Rowse. “It’s a good deal for Sanlam and African Life, and our staff.”

On a systems level Sanlam runs a relatively expensive back office – when compared to African Life, although it is cost effective when compared to Sanlam’s competitors.

“We (African Life management) will be measured by returns and if it makes sense to look at all systems. In terms of the brand - we will maintain the brand – testing the brand in the market against Sanlam in our market,” says Rowse.

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