Old Mutual is set to offload its Italian stake following its announcement on Friday that it has entered into a short period of exclusive negotiations with Cinven, the owner of Ergo Italia, regarding the sale of Old Mutual Wealth Italy.
Although the company said there was certainty at this stage that the negotiations would lead to a transaction, analysts said the conclusion of the transaction was a mere formality as Old Mutual had made its plans to restructure the investment and assets management portfolio public.
The strategic review by Old Mutual announced by the chief executive, Bruce Hemphill, last year sought to split the group in four separate entities.
The four groups will be: Old Mutual Wealth based in the UK; Old Mutual Emerging Markets based in South Africa; Old Mutual Asset Management based in the US; and Nedbank. These will operate as independent businesses, which could unlock significant value for shareholders and free capital. Old Mutual Wealth Italy is owned by Old Mutual Wealth.
Old Mutual provides investment, savings, insurance and banking services to 18.9 million customers in Africa, America, Asia and Europe. The group was founded in South Africa in 1845. Old Mutual was not available on Friday for comment on the possible Italian sale.
The potential buyer, Ergo Italia, operates in the property-casualty, life and health insurance segments with its subsidiaries Ergo Previdenza and Ergo Assicurazioni.
The group said in 2014 that premium income stood at e359 million (R5 billion). The group ranks 29th in the Italian life insurance and 30th in the non-life insurance market.
Brad Preston, a portfolio manager at Mergence Investment Managers, said the announcement was part of the overall break-up of the business. Preston said it would not be difficult to dispose of the Italian business as it was run as a “relative stand-alone”.
“Old Mutual group needs to reduce gearing to be able to complete the group break-up so a sale of the Italian business and then the US asset management business are probably the first steps before they can list or sell the Old Mutual Wealth business in the UK and then list the South African business and unbundle Nedbank to South African shareholders,” Preston said.
Nico Smuts, an analyst at 36ONE Asset Management, agreed with Preston about Old Mutual’s intention about its Italian business.
“Old Mutual is simplifying its structure in preparation for the upcoming managed separation process. I believe that the group intends to sell Old Mutual Wealth Italy because it is a non-core business and would not fit within any of the four segments,” Smuts said.
Old Mutual shares closed 0.62 percent higher at R38.84 a share on the JSE on Friday.