Published Date: 2021-07-16 | Source: INCE|Community | Author: The Finance Ghost
If someone asks me what I do for a living these days, I may as well say that I comment on JSE delistings and other corporate events. Without doubt, this narrative cannot be ignored. The JSE is shrinking by the month.
Liberty was a bit of a sitting duck to be honest. Before the pandemic, it went mostly sideways for several years. Since the pandemic, it bounced around but didn't register much of a recovery.
Standard Bank has decided to take action through a buyout offer for the approximately 46% of Liberty that it doesn't already own.
The Standard Bank - Liberty relationship has been in place since 1974, in a classic example of a bancassurance model. This is a fancy word to describe a business model in which banks sell insurance products to clients.
In practice, these relationships are often high on gumph and low on execution. It's very easy to talk about cross-selling to clients. It's incredibly difficult to achieve in practice.
However, if Liberty becomes a subsidiary of Standard Bank, the strategy does stand a better chance of success. Clearly, it's much easier to integrate under these circumstances. This opens up new African markets to Liberty and brings additional product opportunities to Standard Bank, especially in the private client space.
One wonders if Sanlam might make a play for Alexander Forbes. One wonders if this Liberty deal might encourage such a move. For now, that's purely speculation.
If the deal goes ahead, Liberty shareholders would receive 0.5 Standard Bank shares for each Liberty share, plus R25.50 in cash per share. This would be structured as a R11.10 special dividend and a R14.40 cash payout from Standard Bank.
This implies a total consideration per share of R89.46, a premium of 32.6% to the closing price of Liberty shares on 14th July before the deal was announced. That's a market-related premium for a deal of this nature and demonstrates once more why investors actively look for companies that are attractive buyout opportunities.
Liberty preference shareholders also have the chance to exit at a price of R1.50 per preference share, a premium of 36.4% to that share price on the day before the offer.
Shareholders representing 35.4% of the Liberty ordinary share voting pool have given letters of support that they will vote in favour of the transaction.
Importantly, the deal is dilutive at earnings level for Standard Bank, which means earnings per share would be lower for the group had it owned Liberty since the start of 2020 (the basis on which the announcement presents this calculation). To be fair, this is based on a watershed year for the life insurance industry that has been dominated by the pandemic.
Standard Bank shareholders don't get the opportunity to vote on the deal as this is a Category 2 transaction. Liberty shareholders will be asked to vote on the scheme, but the strong support from asset managers suggests that deal success is more likely than not.
With the likes of Goldman Sachs and Merrill Lynch advising on the deal, I'm expecting some big fees to be disclosed in the transaction circular when it becomes available.