Restructuring of US Revenues
Old Mutual PLC
20 November 2000
Old Mutual plc (OML.L). Restructuring of US revenues / placing
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN, OR INTO,
THE UNITED STATES OR CANADA
This announcement does not constitute an offer of
securities for sale in the United States. The information
contained herein is not for publication or distribution
to persons in the United States. The New Ordinary Shares
have not been and will not be registered under the U.S.
Securities Act of 1933 (the 'Securities Act') and may not
be offered or sold in the United States unless they are
registered with the U.S. Securities and Exchange
Commission or pursuant to an exemption from the
registration requirements of the Securities Act.
OLD MUTUAL PLC
Old Mutual restructures management incentives at Pilgrim
Baxter & Associates and acquires control of additional
revenue streams
-----------
Placing of new ordinary shares of Old Mutual plc to raise
$220 million
and of approximately 25 million existing ordinary shares
Pilgrim Baxter & Associates
Following the completion of the acquisition of United
Asset Management Corporation ('UAM'), the US fund
management group, Old Mutual has embarked on a phased
restructuring of the UAM group.
A process has been initiated to create a core group of
UAM affiliates that will retain their existing investment
management and marketing focus, but which will co-operate
to create a substantial multi-style presence in the US
fund management industry.
Pilgrim Baxter & Associates, Ltd ('PBA') has grown its
assets under management from $7 billion to $26 billion in
the period from 1 January 1996 to 30 September 2000 and
has achieved a strong reputation through the performance
of its funds. For the six months to 30 June 2000 and the
nine months to 30 September 2000, PBA had unaudited
revenues of $91 million and $144 million respectively and
earnings before interest, taxation, depreciation and
amortisation ('EBITDA') of $71 million and $112 million
respectively.
The revenues of PBA have been subject to a revenue
sharing agreement between UAM and Harold Baxter and Gary
Pilgrim, the principals of PBA, under which UAM is
estimated to be entitled to approximately 35% of revenues
for the current financial year ending 31 December 2000.
Old Mutual announces that it has now concluded an
agreement with Harold Baxter and Gary Pilgrim to
restructure the revenue sharing arrangements at PBA, in
the following manner:
* Old Mutual has agreed to acquire, inter alia, 52% of
the principals' revenue sharing interests with effect
from 1 January 2001 for a payment of $220 million,
payable in two equal instalments, which Old Mutual
intends to finance by a placing of new ordinary shares
(the 'New Ordinary Shares'). $110 million cash will be
paid in November 2000. The balance is expected to be
paid in the first quarter of 2001, once certain third
party and regulatory consents have been obtained.
* Old Mutual has been granted an option to acquire the
remaining 48% of the principals' revenue shares in PBA
from January 2002 for the sum of $420 million payable
in six equal annual instalments from April 2002.
It is intended, so as to ensure continued management
incentivisation, that a phantom stock plan will be
established in which the principals of PBA and other key
existing employees of PBA will receive phantom stock
rights in a total of up to 13.8% of the equity of PBA.
Phantom stock rights in a further 3.7% of the equity of
PBA have been earmarked for new employees to provide
incentives in the context of the future expansion of the
firm.
Harold Baxter and Gary Pilgrim have entered into new long
term employment contracts with PBA and these are designed
to secure the long term stability of the business.
The Board of PBA has agreed to market funds offered by
other companies in the Old Mutual Asset Managers group
that complement the PBHG funds family and to develop the
PBA business as an integrated operation of Old Mutual.
It is Old Mutual's and PBA's intention to develop PBA and
the PBHG family of mutual funds into one of the most
prominent mutual fund groups in the USA.
Eric Anstee will be joining the Board of PBA and it is
expected that Mr Pieter van Niekerk will join PBA as
international strategy director from Old Mutual Unit
Trusts of South Africa.
Benefits of the transaction
The restructuring allows Old Mutual to achieve a number
of strategic goals. These include:
* Securing a major retail funds franchise and brand
names in the leading funds market in the world.
* Providing enhanced opportunities for Old Mutual Asset
Managers to develop sub-management franchises through
PBHG.
* Enhanced ability to retain and incentivise existing and
future staff.
* Potential to coordinate the distribution of other Old
Mutual group funds through PBA.
Additionally, the restructuring is expected to have
positive financial benefits to Old Mutual.
* The expected returns from the restructuring comfortably
exceed Old Mutual's exacting hurdle rates of return for
acquisitions.
* The transaction is expected to be earnings enhancing
from 1 January 2001.
* The transaction is structured so that future payments
can be either in the form of cash or Old Mutual equity,
providing maximum flexibility in the future.
Placing of new and existing ordinary shares
Old Mutual intends to satisfy the initial $220 million of
payments from the proceeds of a placing of New Ordinary
Shares on the London Stock Exchange. Simultaneously, a
placing is to be made of approximately 25 million
existing issued shares in Old Mutual, representing the
balance of shares held in connection with satisfying
claims and errors in the Company's demutualisation in May
1999, which are now due to be sold in accordance with the
Scheme of Demutualisation.
The number of New Ordinary Shares to be issued will
represent approximately 3% of the Company's issued share
capital. The shares being placed will rank pari passu
with the existing issued ordinary shares of Old Mutual.
Applications for listing and trading will be made in
relation to the New Ordinary Shares to the UK Listing
Authority and the London Stock Exchange respectively.
Applications are also being made for the New Ordinary
Shares to be admitted to listing on the JSE Securities
Exchange South Africa and the Namibian, Malawi and
Zimbabwe Stock Exchanges. It is expected that admission
and dealing will become effective on Monday 27 November
2000.
Details of the number of New Ordinary Shares to be issued
and the price at which they will be offered are expected
to be determined and announced, following a bookbuilding
process, as soon as practicable after the placing closes.
Summary
Old Mutual believes that the terms of the transaction
described above reflect the successful track record of
PBA's mutual funds established over a number of years and
their industry-leading performance. The transaction also
underlines the attractiveness and benefits of the
original acquisition of UAM. It also further increases
the proportion of international revenue generated by Old
Mutual.
Eric Anstee, Chief Executive, Financial Services, Old
Mutual, commented:
'Pilgrim Baxter is one of the most significant firms
within the UAM group and an essential part of our
strategy to secure a major platform for Old Mutual in the
key mutual funds industry. Old Mutual will derive
enhanced shareholder value from the UAM acquisition as a
whole following this transaction.
This agreement with Pilgrim Baxter will ensure greater
operational efficiencies and allow us to incentivise
existing fund managers and attract new-generation talent.
Old Mutual will benefit from the considerable scope in
unexploited synergies within the enlarged Old Mutual
group through product development, cross-selling, and
expanding distribution channels.'
Enquiries:
Old Mutual plc, London
Eric Anstee, Chief Executive, +44 20 7569 0100
Financial Services
James Poole, Director, +44 20 7569 0121
Investor Relations
Merrill Lynch +44 20 7772 1000
Guy Short
Michael Rowan
UBS Warburg +44 20 7567 8000
Oliver Pawle
Jim Renwick
Credit Suisse First Boston +44 20 7888 1000
Malik Karim
Graeme Lewis
College Hill, London +44 20 7457 2020
Gareth David
Nicholas Williams
College Hill, Johannesburg +27 11 447 3030
Kim Milnes
This announcement has been issued by and is the sole
responsibility of the Company. UBS Warburg and Merrill
Lynch are each acting for the Company and no one else in
relation to the placing and will not be responsible to
anyone other than the Company for providing the
protections afforded to their customers nor for providing
advice in relation to the placing.
Notes to Editors
Pilgrim Baxter & Associates
PBA's disciplined approach to investing has produced long-
term track records across both growth and value equity
styles. PBA has industry-leading product positioning in
specialty disciplines including technology and
concentrated investing.
PBA's assets under management ('AUM') have grown
significantly over the last six years. AUM increased
from $4.075 billion in 1994 to $7.056 billion in 1995, to
$14.954 billion in 1996, declining slightly to $14.434
billion in 1997 and $12.278 billion in 1998 before
increasing to $18.292 billion in 1999 and to $26.451
billion at 30 September 2000.
Of the total AUM at 30 September 2000, 78% are Mutual
Funds; 18% are Institutional; and 4% are Sub-advised
accounts. By channel, the AUM are split 29% Direct; 22%
Institutional; 21% Insurance; 18% Supermarkets; and 10%
are 401(k) funds.
As at 30 September 2000, six of PBA's mutual funds had 5-
star Morningstar ratings. They are:
* PBHG Large Cap 20 (AUM $1.163 billion)
* PBHG Large Cap Growth (AUM $503 million)
* PBHG Select Equity (AUM $2.106 billion)
* PBHG Technology & Communications (AUM $3.574
billion)
* PBHG Limited (AUM $145 million)
* PBHG Mid-Cap Value (AUM $117 million)
Additionally, a further three funds with AUM of $375
million were rated 4-star and three funds with AUM of
$6.442 billion were rated 3-star.
Old Mutual plc
Old Mutual plc is an international financial services
company based in London, with expanding operations in
life assurance, asset management, banking and general
insurance. Following demutualisation in May 1999, it is
listed on the London Stock Exchange with a market
capitalisation at 17 November 2000 of approximately £5.4
billion. It is also listed in South Africa, Namibia,
Malawi and Zimbabwe.
Financials for the six months ended 30 June 2000
* Operating profits based on a long term investment
return increased 61% to £457m.
* Operating earnings per share based on a long term
investment return rose 50% to 9 pence.
* Total funds under management increased 23% to £55.1
billion from £44.9 billion at December 1999.
* Continuing life assurance operating profits based on a
long term investment return rose 26% to £249 million.
* Banking operating profits increased 59% to £156
million.
Key Businesses:
Life Assurance
In southern Africa, Old Mutual provides life, disability,
health, retirement savings and investment products to
individuals and groups. With over 3.2 million
policyholders, Old Mutual has approximately 30% of the
life assurance market in South Africa.
The development of a fully integrated eCommerce
capability is a strategic priority. During the past six
months, Old Mutual has extended its partnerships in
networks and systems, working with Nedcor and Dimension
Data, including joint investments in Internet Solutions,
a leading South African corporate internet service
provider, and Miraculum, a business-to-business
electronic marketplace.
Old Mutual International is the offshore and
international investment subsidiary providing
individually tailored offshore investments, life
assurance and unit trusts from product companies based in
Guernsey.
On 2 August 2000 Old Mutual announced a joint venture
with Kotak Mahindra Finance Ltd, one of India's largest
financial services companies, to establish a life
assurance business in India.
Asset Management
Old Mutual Asset Managers provides a multi-country asset
management capability with global investment and asset
management expertise. Old Mutual Unit Trusts is the
leading unit trust provider in South Africa.
On 31 March 2000, Old Mutual completed the acquisition of
Gerrard Group plc, parent company of Greig Middleton. On
10 May 2000, Old Mutual's subsidiary, Albert E Sharp
Securities, and Greig Middleton's institutional and
stockbroking businesses, merged to form Old Mutual
Securities, which focusses on the growth sector of
corporate and advisory services for smaller and medium
sized UK and European companies.
Old Mutual's private client businesses, Greig
Middleton/Capel Cure Sharp, is one of the leading
providers of portfolio management and stockbroking
services to high net-worth individuals in the UK.
GNI, the leading derivatives house in London and Europe,
is Old Mutual's specialised broking and derivatives
market subsidiary.
On 26 September 2000, Old Mutual plc acquired United
Asset Management Corporation, one of the largest
investment management organisations in the world,
increasing the group's total assets under management to
approximately $275bn (£190bn).
Banking
Old Mutual's banking business is conducted principally by
Nedcor, in which the company has a 53.5% controlling
interest. Nedcor is the highest rated bank listed on the
JSE Securities Exchange South Africa. Its activities
include retail, commercial, corporate and investment
banking and asset management, with more than 2.4 million
banking customers. On 20 September 2000, Old Mutual and
Nedcor strengthened their partnership with Dimension Data
Holdings plc, a global network services company listed in
London. In July 2000, Nedcor acquired FBC Fidelity Bank,
which is being merged with Peoples Bank to create the
biggest empowerment bank in South Africa.
General Insurance
Old Mutual holds a 51% controlling interest in Mutual &
Federal Insurance Company, which writes motor, fire,
accident, engineering and marine business. M&F is one of
the largest general insurers in South Africa. It is
listed on the JSE Securities Exchange South Africa, with
operations in South Africa, Namibia, Botswana and
Zimbabwe. On 17 October 2000, it completed its
acquisition of CGU Holdings Ltd for £115 million, and had
a market capitalisation of £364 million.
Advisers
Old Mutual was advised on the transaction by Credit
Suisse First Boston and PBA was advised by Goldman Sachs.
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