Standard Bank plans to take full control of Liberty Holdings in an R11bn deal that will create a pan-African financial services conglomerate and double down on a business model some have ditched.
Under the cash and share deal unveiled on Thursday, Standard Bank — Africa’s largest bank by assets, which already owns 53.6% of the insurance group — has offered R89.96 per share. It is a 33% premium to Liberty’s close on Wednesday and values the group at R25.6bn.
Liberty shareholders will get half a Standard Bank share and R25.50 in cash for each Liberty share. The offer values the remaining Liberty shares, excluding those indirectly controlled by Standard Bank, at R10.5bn. It was enough to propel Liberty’s shares up by a quarter before trimming gains to close 22.7% higher at R82.80 for their biggest one-day gain in almost13 years.
For Standard Bank, the deal strengthens a long-standing relationship with Liberty, in which it bought a controlling stake in 1999 from founder Donald Gordon. And it advances group CEO Sim Tshabalala’s stated ambition to create a pan-African conglomerate offering everything from banking and asset management to insurance and wealth management.
“We think by pulling the two together you then offer more to the client than simply a set of disparate products,” said Tshabalala.
Integrated
“You are able to meet a client’s needs in all their life stages whether it be the need to pay, to borrow, to invest, to insure assets, to create wealth and to preserve it for future generations,” he said. “You’re doing it in an integrated way.”
The deal, if successful, will take Standard Bank down the path many have abandoned because the costs of running a bank-insurance hybrid — otherwise known as bancassurance — outweighed the benefit of cross-selling products to a wider audience.
Rival FirstRand exited its stake in Momentum in 2010 to focus on its mainstay lending business, while Old Mutual completed a four-way break-up of its conglomerate structure three years ago that included cutting its stake in Nedbank to just under 10%.
For Liberty — whose management, led by David Munro, is in favour of the deal — the transaction comes as the insurance industry is buckling under the weight of Covid-related claims, which have kept equity valuations under pressure.
Munro told Business Day the group would build scale in an industry that in particular was facing unrelenting pressure from the pace of digitalisation.
“There is increasing relevance of a single place of need fulfilment,” said Munro, who was appointed in 2017 after Standard Bank clashed with former CEO Thabo Dloti over the strategic direction of Liberty.
“It is easier to shop on Amazon, on the basis that they have everything,” he said.
Questions
Independent expert EY, which was hired to scrutinise the offer, deemed it fair and reasonable on a preliminary basis.
However, analysts questioned its commercial merits for Liberty shareholders.
Chantal Marx, head of investment research at FNB Wealth and Investments, said the offer looked better for Standard Bank than for Liberty, given the latter was trading at a hefty discount to its directors’ valuation.
“Liberty trades at a discount to its equity value because it has had some strain on its balance sheet and issues with strategy and sales execution — new business margins have been quite low — so it is difficult to see how that discount will narrow medium term,” she said.
Nesan Nair, a portfolio manager at Sasfin Securities, said the offer was a surprise and he had always viewed Liberty as a thorn in Standard Bank’s side.
“They’ve often experienced massive earnings volatility as a result of Liberty’s performance and that bancassurance model hasn’t really worked,” he said.
“One thing’s for sure though, the insurers are dirt cheap, cheaper than the banks I think, essentially because of the economy, employment, Covid-19 and, recently, rioting.” With Tiisetso Motsoeneng
Update: July 15 2021
This article has been updated with additional information and industry comment.
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