Old Mutual Plc (LON:OML) has announced that its majority-owned South African banking subsidiary Nedbank Group Limited is to acquire a 20 percent stake in pan-African lender Ecobank Transnational for $493 million (£306 million) in cash.
As of 08:02 BST, Old Mutual’s share price had added 0.56 percent to 178.60p.
Nedbank acquires 20% stake in Ecobank Transnational
Financial services and insurance group Old Mutual Plc revealed in a statement yesterday that its South African subsidiary Nedbank Group had exercised its rights to subscribe for a 20 percent shareholding in Ecobank Transnational Incorporated (ETI). The group is to pay $493.4 million for 4.5 billion new Ecobank shares.
In accordance with the agreement’s terms, ETI will repay its $285 million loan to Nedbank, received in 2011, the two banks said in a joint statement released yesterday. This will leave Ecobank with $208.4 million in cash.
Nedbank, which is entitled to a right of representation on the ETI board, has nominated its chief operating officer, Graham Dempster, to join the board, with the appointment being subject to regulatory approval.
Julian Roberts, group chief executive at Old Mutual, commented: "This investment demonstrates our commitment to Ecobank and is a further deepening of Nedbank's strategic alliance. It is a significant step in the Old Mutual Group's ambition of becoming Africa's financial services champion."
Strategic alliance
Nedbank‘s strategic alliance with Ecobank, established in 2008, represents an important part of the company’s expansion strategy in Africa.
It obtained the right to buy shares in Ecobank under the terms of the 2011 loan, but an investigation into ETI’s corporate governance by Nigeria’s Securities and Exchange Commission last year prevented it from taking up its stake at the time.
The acquisition of the ETI stake will provide Nedbank with access to the continent’s fastest growing markets and will enable the bank to compete with larger rivals in South Africa. The move, however, also means that it will have to share its influence with Qatar National Bank, which is Ecobank's other strategic investor, with a similar stake to Nedbank.
Reuters yesterday quoted Chris Steward, head of financials at Investec Asset Management, as saying: "Nedbank will be investing a very substantial amount of their energies into a business where they own a 20 percent stake and another bank with considerably deeper pockets owns an equal stake."
He added: "It's a little bit like: 'do you really want to renovate this house and make it look beautiful when you're only renting?'"
Analysts on Old Mutual
According to the Financial Times, as of September 29, 2014, the consensus forecast amongst 24 polled investment analysts covering Old Mutual plc has it that the company will outperform the market. This has been the consensus forecast since the sentiment of investment analysts improved on August 23, 2013.
The nine analysts offering 12 month price targets for the financial services group have a median target of 215.00p, with a high estimate of 230.00p and a low estimate of 146.00p.
As of 08:01 BST, buy Old Mutual shares at 179.10p.
As of 08:01 BST, sell Old Mutual shares at 178.70p.
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