Old Mutual‘s takeover of Swedish life and savings company Skandia will strengthen its standing as an international insurer, according to rating agency AM Best.
The company makes the majority of its income in the South African market. The takeover will bolster its strategy to diversify. Skandia’s U.K. business is growing fast – an area Old Mutual wants to grow in.
“It is certainly a positive move in terms of the business position of the company,” says Vasilis Katsipis, assistant general manager at AM Best. “Old Mutual has a good presence in the South African and U.S. markets. However, it was previously lacking in the U.K. This acquisition will suit its expansion strategy in this market.”
Analysts also believe the acquisition is good value for money. “Old Mutual has paid a fair price on a standalone basis,” says Per Gronborg, analyst at investment bank Alfred Berg. “It has purchased the shares at a small premium to the net assets of Skandia.”
The South African insurer is offering Skandia shareholders SKr16.5 ($2.2) and 1.372 Old Mutual shares for each Skandia share. This is equivalent to SKr44.9 billion in total, or SKr43.6 a Skandia share. This is a 25% mark-up on Skandia’s share price on May 12 last year – the day before Old Mutual entered takeover talks with Skandia.
Almost 70% of the Skandia shareholders have accepted Old Mutual’s offer. The company has also extended its acceptance period until Jan. 23 at unchanged terms and conditions.
Both the Swedish regulator and the U.K.'s Financial Services Authority have approved the deal. In a statement, Old Mutual said it expects to gain approval from “a small number of other jurisdictions,” shortly, but did not identify which ones.
Some observers had questioned whether the U.K. listed company could afford Skandia. Katsipis says AM Best is not concerned about the company raising more debt to fund the acquisition.
“The takeover has increased Old Mutual’s leveraging. But it is within its financial capability. At this stage we will not be putting the company’s financial strength rating under review,” he says.