Old Mutual Plc (OML), the third-biggest U.K. insurer, plans to sell its Nordic unit to Skandia Liv for 2.1 billion pounds ($3.3 billion) to reduce debt and return capital to investors. The shares soared.
The cash sale of Skandia Insurance Co. Ltd. includes Old Mutual’s long-term savings and banking operations in Sweden, Denmark and Norway, London-based Old Mutual said today in a statement. Old Mutual gained 11 percent to 123.7 pence in London, the biggest rise since March 2009.
“The sale is significantly in excess or our sum-of-the- parts component for these businesses of 1.4 billion pounds,” wrote Goldman Sachs Group Inc. analyst Colin Simpson in a note to investors today. “The company should become significantly less complex and have less debt.”
Old Mutual, Africa’s biggest insurer, bought Skandia AB, its largest acquisition, in June 2006 for 56 billion kronor ($8 billion) to enter Scandinavia and bolster sales in the U.K., where the Stockholm-based company made about half of its revenue. Skandia Liv, a customer-owned insurance subsidiary of Old Mutual, will operate independently from its parent following the deal, which is due to be completed in the first quarter of next year.
Old Mutual, which was founded in Cape Town in 1845, in November said it plans to repay 1 billion pounds of debt by the end of next year after having paid down about 473 million pounds in July and 31 million pounds in September.
“This transaction represents a material step in the execution of our restructuring program,” Old Mutual Chief Executive Officer Julian Roberts said in the statement. “We intend to use the proceeds from the sale to accelerate the reduction in group borrowings and return surplus capital arising from the transaction to shareholders.”
Old Mutual, with operations in South Africa, the U.K and the U.S., is selling assets three years after guarantees offered to policyholders and writedowns on investments, including Lehman Brothers Holdings Inc., forced former CEO Jim Sutcliffe to step down.
The insurer is planning an initial public offering of its U.S. asset-management business and in 2010 agreed to sell its U.S. life insurance unit to Harbinger Capital Partners for $350 million. Last year talks broke down to sell a $3.7 billion stake in Nedbank Group Ltd. (NED), a South African bank, to HSBC Holdings Plc.
Skandia Liv will have 2 million customers and manage 440 billion kronor of assets following the purchase, it said in a separate statement.
“In the long term we will have a better platform to improve our offering and competitiveness,” said Bengt-Åke Fagerman, CEO of Skandia Liv. “The new entity will be an independent customer-owned alternative to the large banks.” Fagerman will be CEO of the newly formed Skandia group.
Old Mutual’s U.K. unit won’t be affected by the sale, Roberts told journalists on a conference call today. The insurer was advised by Evercore Partners Ltd. and Morgan Stanley. Skandia Liv was advised by JPMorgan Chase & Co. and Lazard Ltd.
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