'Elegant' deal as Liberty and Standard Bank make it official

Bank's offer to buy insurer a nod to return of 'bancassurance'

18 July 2021 - 00:13 By Hilary Joffe



After decades of living together but apart, Standard Bank and Liberty are set to move in with each other, with Standard making a R10.8bn offer to buy out the 46% of Liberty it does not already own in a deal that will create a more closely integrated banking, life insurance and asset management group.The deal has been driven in part by the way the Covid pandemic has catapulted digital transformation over the past 18 months, said Liberty CEO David Munro, who described the deal as a natural progression in his group's strategy. Standard CEO Sim Tshabalala said the integration would create a financial services powerhouse in Africa and enhance the group's ability to meet clients' financial needs.The move, which would cement the group's long-standing "bancassurance" relationship, goes somewhat against the industry trend in SA, where Old Mutual unbundled its controlling stake in Nedbank in 2018 and FirstRand spun out its stake in life assurer MMI more than a decade ago. But one of SA's fastest-growing insurers is that of banking group FNB. Tshabalala pointed on Thursday to a global trend towards integrating banks and insurers, or banks and investment managers, and Munro said consolidation and scale are emerging themes in financial services globally, as digital transformation accelerates.Analysts said Standard is getting Liberty at a good price. Standard has offered a mix of cash and shares in a transaction worth almost R90 a share - well below Liberty's end-2020 "equity" or embedded value of R128.32 per share. Though the pandemic has hammered all financial services shares, Liberty's valuation has been harder hit than Standard's and there are concerns about its exposure to commercial and retail property (it owns Sandton City, among other properties) as well as about the impact of Covid on its life book.The offer was pitched at a premium of about 40% to the weighted average at which the Liberty shares have been trading over the past 30 days, though the share jumped by 25% on news of the deal.Liberty, founded 70 years ago by the late Donald Gordon, is one of SA's largest life assurance groups, and has the largest share of the affluent retail market, as well as owning one of SA's largest fund managers, Stanlib.There's long been speculation that Standard would at some stage buy out the Liberty minorities and take the group private, speculation that has been fuelled by the operational and strategic challenges the group has faced over the past five years. Analysts cautioned that there are risks to such a large merger - though the fact that the two groups know each other intimately is a plus.In an interview this week, Munro downplayed merger risk, saying there is almost no overlap or duplication and the two groups' skills and people would complement each other. Liberty is midway into implementing its new strategy, launched in 2017, which focuses on making the group a modern digital platform business augmented by the human touch of its leading adviser (broker) network. "We have built the platform to deliver. We can now open the taps," said Munro.Standard has had full control of Liberty with 54% since the life assurance group's structure was simplified in 1998. Before that there was a complicated cross-holding in which Liberty held 39% of Standard, a stake which it bought in 1987 when UK-based Standard Chartered Bank disinvested from SA, selling its stake in the local banking group at the height of apartheid-era sanctions. Genera Capital director Adrian Saville said equity investors had for a long time found the relationship between the two groups murky, with unanswered questions in terms of strategic direction, and the deal would remove this. "It makes a huge amount of sense on paper. It removes the uncertainty and gives clear direction for the collective in terms of 'bancassurance' - it's back- and if they get it right it could be very effective and extremely elegant," Saville said. "The issue they have to deal with is that mergers and acquisitions are seldom without complication, and I imagine that there will be many complexities that have to be wrestled with to make sure this translates into the success that they see in making this proposal."Reuters reports that Neelash Hansjee, portfolio manager at investor Old Mutual, said investors might be wary because Liberty is a big business to digest and has some issues, such as a lack of clear strategic direction. But he also said the move cements the relationship between the two companies and turns Standard Bank into a fully-fledged provider of banking and insurance products. Munro, who is a former chief of Standard's investment banking operations, said a very formal and rigorous governance process has been followed by Liberty in evaluating the deal, which has been negotiated by an independent board formed for the purpose.

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