Renée Bonorchis
3 October 2008
Johannesburg — THERE were about 12 bidders in the auction for short-term insurer Mutual & Federal, which could see a buyer paying about R5bn, according to Keith Kennedy, MD of the company.
Commentators have been concerned that Old Mutual's disposal of Mutual & Federal would amount to a fire sale given the downturn in the insurance cycle and in financial share prices.
But Kennedy said this week that there were "some very good companies interested" and that they were a mix of local and international firms. "They are all po ring through our information memorandum . By the end of November, binding offers will be in and hopefully we'll know before Christmas."
Mokaedi Dilotsotlhe, GM of business support at Mutual & Federal, said the buyer would not be one of the "rats and mice" because of Mutual & Federal's large market cap. The buyer would have to be cash-rich because of the insurance company's solvency requirements.
"They'll have to shell out about R5bn or more," Kennedy said, and given market volatility, a number of bidders might find the pricing difficult.
Mutual & Federal's market cap was sitting at R5,3bn yesterday, with its share price having fallen 34% this year.
Early in August, it was the first financial services firm to release interim results. Kennedy described them as "dreadful". It reported that profit had fallen 68% and investment income had plummeted from R574m to R278m.
On the same day, parent company Old Mutual said it would finally sell its 75% stake in Mutual & Federal in an auction after talks earlier in the year with Royal Bafokeng Holdings had failed.
Kennedy had known for a while that the Old Mutual sale was coming. He still says he would have rather restructured the business first and then looked for a deal.
Mutual & Federal was also the first financial firm to announce staff retrenchments this year, with 20% or more of its employees having been forced to leave the company.
Kennedy said the long process would be completed today and that the restructuring was now complete. There is no guarantee, however, that the future buyer will not want to reduce the insurer's head count any further.
Nonetheless, Kennedy said the second half of the financial year was going better than the first half.
In agreement with police statistics, Mutual & Federal had found there had been a fall-off in vehicles stolen and hijackings, with fewer, but more violent and severe, house robberies.
"The number of large fires has decreased and we are getting to grips with group schemes," Kennedy said.
He explained that flooding, fires, big hail and tidal waves were the weather events that caused Mutual & Federal's claims to rise and put pressure on company earnings. Claims had been unusually high in the past two periods, but Dilotsotlhe said only two of the 21 large fires were suspicious.
Mutual & Federal said it had been relieved to note that it was not the insurer when it came to the recent fires at Kwa Maritane in Pilanesberg.
Since its interim results, Mutual & Federal's large commercial claims had increased only marginally.
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