institutional investors the Standard Bank of South Africa (SBSA) is
to remove a pyramid structure through which it has controlled South
African life insurer Liberty Group since 1999. To achieve the
restructuring SBSA is to make a cash offer worth a total of ZAR4.4
billion ($575 million) to acquire the 40.83 percent interest it
does not own in the top company in the pyramid, Liberty Holdings,
which has a 52.2 percent stake in Liberty Group.
SBSA’s ZAR219.25 per share cash offer to Liberty Holdings’
minorities represents a 23.2 percent premium compared with Liberty
Holdings’ closing price immediately prior to SBSA’s
announcement.
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The offer price reflects the underlying value of Liberty Holdings’
investment in Liberty Group plus an additional 6 percent premium to
cover capital gains tax to be paid by Liberty Holdings minority
shareholders and costs that would be incurred if they choose to
reinvest the proceeds in Liberty Group. If all minorities accept
the offer, SBSA’s economic interest in Liberty Group will increase
from the current 33 percent to 53 percent.
The deal comes at a time when SBSA has considerable capital
resources at its disposal following the acquisition by Commercial
Bank of China of a 20 percent stake in SBSA for $5.5 billion cash
in October 2007.
SBSA’s CEO, Jacko Maree, explained that the bank wants to increase
its effective economic interest in Liberty as part of a rebalancing
of its portfolio of financial services units and to derive
financial benefits more in line with the commercial contribution it
has made to Liberty.
Should all Liberty Holdings shareholders accept the offer, based on
2007 earnings, Liberty’s earnings will constitute over 11 percent
of Standard Bank’s net earnings, up from 7 percent currently.
In 2007 Liberty reported a net profit of ZAR3.129 billion of which
the major portion, ZAR1.798 billion was contributed by life
insurance operations. New life and pensions business premium income
generated in 2007 was ZAR34.75 billion, up 24.6 percent compared
with 2006.
The second largest profit contribution in 2007, ZAR661 million, was
derived from shareholders funds. This was followed by Liberty’s
wholly owned asset management unit Stanlib which in 2007
contributed a net profit of ZAR455 million. Stanlib had total
assets under management of ZAR340 billion at the end of 2007.
Stanlib, originally established as a joint venture with SBSA in
2002, is a key part of Liberty’s strategy to transform from a
predominantly life insurer into a wealth management company in its
domestic market and other parts of Africa.
Liberty’s strategic drive into other African markets was boosted in
2007 with the merging of the Liberty and Stanlib “rest of Africa”
teams and the establishment of a specialist executive team headed
by Bernard Katompa, the former CFO of resource company BHP
Billiton’s Global Management Group.
“We are serious about the rest of Africa,” stressed Liberty Group’s
deputy CEO, Rex Tomlinson. “We believe that as the continent’s
economic growth gathers speed, opportunities for a nimble and
suitably advantaged regional player will arise.”
He added that Liberty is to establish operational “hubs” in the
southern, western and eastern African regions with a focus on
driving growth across its wealth products range. In a move in this
direction, Charles Muyodi has been appointed as divisional director
of business development in East Africa. Muyodi was formerly COO and
chief actuary of Kenya’s largest life insurer, British American
Insurance.
Liberty is already active in Namibia, Kenya, Uganda, Botswana,
Swaziland and Lesotho where it works in close cooperation with
SBSA.
“Standard Bank’s preeminent footprint in Africa gives us a huge
advantage in researching the feasibility of various markets on the
continent,” said Tomlinson.
In 2004 SBSA completed the roll out of an adapted version of its
South African life and non-life bancassurance model throughout its
retail banking operations in 17 African countries.
