Nedbank Group · JSE:NED
Nedbank — Old Mutual — Merger or Acquisition (2005)
81 slides from Nedbank's merger presentation, 2005
Slide 1: A strong foundation, a new future: Empowering the Old Mutual Group
A strong foundation A new future ! Empowering the Old Mutual Group 1
Slide 2: Agenda
Agenda " Introduction & overview Jim Sutcliffe " WIPHOLD Consortium Gloria Tomatoe Serobe " BRIMSTONE Consortium Fred Robertson " Old Mutual (SA) Roddy Sparks " Nedcor Tom Boardman " Mutual & Federal Bruce Campbell " Conclusion & questions Jim Sutcliffe 2
Slide 3: Building our future
Building our future " “Building a world class international financial services group off a strong SA base” " Strength of our SA business relies on normalisation of society through successful black participation in the economy " The Group has been addressing other key aspects of black economic empowe
Slide 4: Today's transactions
Today’s transactions " Sustainable transformation " Broad-based empowerment " Adding value, accelerating our businesses ! Building our future 4
Slide 5: Sustainable transformation
Sustainable transformation " Introducing new black shareholders through three separate but inter-dependent, broad-based transactions " Resulting in black ownership worth 12.75% of SA businesses " Costs in line with peers, substantially internally funded " First Group offering shares in international
Slide 6: Broad-based empowerment
Broad-based empowerment Old Mutual plc Old Mutual (SA) Nedcor Mutual & Federal Employees (50%) Employees (24%) Employees (54%) Distributors (8%) Clients (53%) Intermediaries (5%) Communities (17%) Communities (4%) Communities (5%) Black Business Black Business Black Business Partners (25%) Partners
Slide 7: Accelerating our businesses
Accelerating our businesses " Deal size in each company maximises value " Every employee in every company incentivised " Short term cost exceeded by long term benefits " 10 year arrangement " Entrepreneurial Black Business Partners incentivised " Measurable performance contracts negotiated annually
Slide 8: Funding
Funding " Funds lent/granted to Employee Share Trusts & SPVs to subscribe for shares " Vendor financing for Black Business Partner SPVs – 8.16% interest (fixed, NACA) – Performance can increase / reduce funding cost by 1.5% of market value at inception " Loans to other trusts at favourable rates 8
Slide 9: Values of transactions
Values of transactions % of SA % of share business capital post Value of shares under black Transactions transaction (Rm) (£m) ownership Old Mutual 5.64 3 448 296 13.48 Nedcor 9.47 3 085 265 11.50 Mutual & Federal 11.14 663 57 11.00 7 196 618 12.75 9
Slide 10: Pro forma financial effects
Pro forma financial effects Year ended 31 December 2004 Before the After the Group Group % SA cents transactions transactions change Adjusted operating EPS 181.1 175.7 (3.0) Basic EPS 166.2 156.8 (5.7) Adjusted embedded value per share 1 508.0 1 475.0 (2.2) Accounting basis: UK GAAP as at Dec 2004 W
Slide 11: Pro forma financial effects (continued)
Pro forma financial effects (continued) Year ended 31 December 2004 Before the After the Group Group % UK pence transactions transactions change Adjusted EPS 15.3 14.8 (3.3) Basic EPS 14.1 13.3 (5.7) Adjusted embedded value per share 139.1 136.0 (2.2) Accounting basis: UK GAAP as at Dec 2004 We will
Slide 12: Pro forma financial effects (continued)
Pro forma financial effects (continued) Year ended 31 December 2004 % of SA Economic Old Mutual business Rm cost plc portion value Old Mutual (SA) 799 799 3.15 Nedcor 968 492 3.66 Mutual & Federal 166 146 3.13 Old Mutual plc (% of market capital) 1 437 2.49 Old Mutual plc (% of SA businesses) 1 437
Slide 13: Black shareholder groupings
Black shareholder groupings Gross value (Rm) Old Mutual Mutual & (SA) Nedcor Federal Total Employees 1 689 739 357 2 785 Clients & distributors 288 1 593 30 1 911 Black Business Partners 864 590 238 1 692 Communities 576 118 30 724 3 417 3 040 655 7 112 Existing black shareholders 889 8 001 13
Slide 14: National impact
National impact " Schemes aim to reach beneficiaries throughout SA – 17 541 black employees (29 260 total employees) countrywide – Clients in all provinces – Distributors, in order to grow black clients nationally – Communities in the poorest areas – Black Business Partners represented in all provin
Slide 15: Employee involvement
Employee involvement " Key step in creating a fully representative work force " All black SA employees within Group eligible to participate " Tailored schemes to retain & promote black leadership " Trusts compliant - full ownership & benefits with black people Old Mutual Mutual & Nedcor Total (SA) F
Slide 16: Building the client base
Building the client base Clients & distributors " Old Mutual (SA) / Mutual & Federal: – Grow distribution channels through empowering black SMME distributors " Nedcor: – Opportunity for black retail banking clients to own shares – Corporate scheme to support black entrepreneurs Communities " Unique
Slide 17: Entrepreneurial business partners
Entrepreneurial business partners " Broad-based empowerment credentials " Organisations of substance & track record " Strong, clear leadership " Share the Group’s values " Financial services experience " Capacity to invest some capital " Interests aligned during extensive discussions " Measured perf
Slide 18: Building for the future
Building for the future " Introducing direct black ownership of the SA businesses totalling 12.75% " Broad-based participation – Employees – Clients & distributors – Communities " High quality partners with measurable performance contracts " Substantially internally funded " Costs in line with indus
Slide 19: Black Business Partners
Black Business Partners Gloria Tomatoe Serobe (WIPHOLD Consortium) Fred Robertson (BRIMSTONE Consortium) 19
Slide 20: Black Business Partners: WIPHOLD Consortium
Black Business Partners WIPHOLD Consortium 82% 3% 15% WIPHOLD NGO Trust – Over 300 000 black women beneficiaries – Focused on financial – Constituent NGOs – Extensive financial services services sector span all 9 provinces experience – Over 1 200 direct & – Effective 17.4% stake – Driving transforma
Slide 21: Why we chose the Group
Why we chose the Group " Leader in the industry " Most comprehensive financial services group " International profile " Identify with Group strategic direction " Common values 21
Slide 22: Where we add value
Where we add value " Assist in retention & attraction of business " Guide strategic & holistic transformation of the Group " Further enhance the profile of the Group " Broad constituencies ! Already actively engaged in the sector 22
Slide 23: Black Business Partners: BRIMSTONE Consortium
Black Business Partners BRIMSTONE Consortium 67% 33% – Private equity & corporate investment – New players in the BEE environment company (Chestnut Hill & Izingwe) – Over 3 700 black shareholders & over – Broad-based groupings representing 19 000 employees in associate over 7 000 black legal & medic
Slide 24: Why we chose the Group
Why we chose the Group " Established business relationship " Understand the business " Believe that we can add to the Group’s success " Common values 24
Slide 25: Performance contracts
Performance contracts " Specific & detailed measurable performance agreements – In excess of 70 different activities being monitored – Performance measure in terms of specific criteria: e.g. “Specified business from identified new client prospect list secured & flowed of R2.5bn lump sum equivalent w
Slide 26: Old Mutual (SA) Transaction
Old Mutual (SA) Transaction Roddy Sparks 26
Slide 27: Highlights
Highlights " Direct black ownership worth 13.48% of Old Mutual (SA) " Includes 7 458 black staff participants " Unique schemes benefit union members & intermediaries 8.4% 16.9% Employees Black distributors Education Trust 49.4% 25.3% Black Business Partners 27
Slide 28: Proposed structure
Proposed structure Employees Black Business Distributors & Partners Community Senior Management Broad- Black Black WIPHOLD BRIMSTONE Education Plan based Distributors Management Consortium Consortium Trust (LTIP) Plan Trust Plan 2.05% 0.14% 0.63% 0.71% 0.71% 0.47% 0.94% 5.64% of Old Mutual plc – 5.5
Slide 29: Employee plans
Employee plans Senior Black Management Execs Management Plan Plan Senior management Middle management Broad- based Plan Employees 29
Slide 30: Employee plans (continued)
Employee plans (continued) SENIOR BLACK MNGT MANAGEMENT BROAD-BASED % value post trans 0.63 2.05 0.14 Option : share grant 0 : 100 77 : 23 0 : 100 Vesting criteria 4, 5 & 6 years 3 years 5 years Duration 10 years 9 years 5 years Black employees only Yes Yes No 30
Slide 31: Senior Black Management Plan
Senior Black Management Plan (1.53%) " Initial once-off restrictive share plan (RSP) share award to senior black management " For current & future employees " Senior black managers also entitled to participate in Management Scheme " Subject to performance & market-related compensation " Delivery aft
Slide 32: Management Plan
Management Plan (4.93%) " Replaces current management incentive scheme " 2.05% of Old Mutual plc shares (worth 4.93% of Old Mutual (SA)) reserved solely for current & future black management " Expect to increase proportion of black management " Subject to performance & market-related compensation "
Slide 33: Broad-based Plan
Broad-based Plan (0.20% black) " Once-off award of Old Mutual plc shares - value of R7 500 " All permanent employees who have not previously participated in share schemes " Shares held in a trust on employees’ behalf for five years " Shares transferred after five year period & can sell after this "
Slide 34: Black Distributors Trust
Black Distributors Trust (1.14%) " Recognises need to reach under-serviced market more effectively " Shares worth R288m to be placed into trust to provide finance to set up black brokers & agents in business " Supplements work of Old Mutual’s Academy for Financial Planners " Supports creation of SMM
Slide 35: Education Trust
Education Trust (2.27%) " Benefits black members of participating client trade unions " Shares worth R576m to be placed into trust to fund tertiary education bursaries " More than 1 000 bursaries over 10 years " Initial participants (representing 600 000 members): – Democratic Nursing Organisation o
Slide 36: Funding structure
Funding structure " Old Mutual plc shares issued to four SPVs for: Old Mutual (SA) Black Old Mutual (SA) Black Business Distributors Trust Education Trust Partners x 2 " Issued for Rand equivalent of 10 pence per share (par value Old Mutual plc) in cash plus cash undertaking " Black Business Partner
Slide 37: Funding structure (continued)
Funding structure (continued) " Other SPVs: part of dividends used to repay third party loans & Old Mutual obligations " Advantages of funding approach include: – Structure easy to implement – No exposure to expensive third party financing – Avoid lengthy negotiations with third party funders – Flex
Slide 38: Economic effects
Economic effects Rm Value of Old Mutual (SA) post transaction 25 534 Value of Old Mutual (SA) transaction 3 448 Less: white component of broad-based scheme (31) Black ownership portion 3 417 Black ownership portion as % of value of Old Mutual (SA) 13.48% Estimated economic cost 799 Economic cost as
Slide 39: Value adding, broad-based
Value adding, broad-based " Black ownership of Old Mutual (SA) will reach R4.3 billion in value " Truly broad-based transaction " Almost 50% of new shares allocated will be for black employees " Value adding, broad-based Black Business Partners " Unique Client & Distributor schemes to benefit black
Slide 40: Nedcor Ownership Plan
Nedcor Ownership Plan Tom Boardman “With the commitments from the private sector as demonstrated by the banks, it is clear that together, as South Africans, we are set to make a determined effort to speed up broad- based black economic empowerment and small business development.” President Thabo Mbe
Slide 41: Highlights
Highlights " Unique retail & corporate client schemes " 11.5% of value of SA businesses " Benefits all stakeholders Employees 23.3% 29.1% Retail clients Corporate clients (incl Aka 3.3%) Communities 3.9% Black Business Partners 22.4% Non-exec directors 19.4% 1.9% 41
Slide 42: Proposed structure
Proposed structure Employees Clients & Communities Strategic Partners Black Broad- Retail Non- Community WIPHOLD Executive based Client executive Trust Consortium Trust Scheme Scheme Directors 0.48% 0.33% 2.17% 0.36% 0.91% 0.18% Business Corporate Black Development Evergreen Client BRIMSTONE Managem
Slide 43: Employee schemes
Employee schemes Black Executive Trust EXCO Senior Black Management management Scheme Middle management Broad- based Junior management Scheme Employees Evergreen Trust 43
Slide 44: Employee schemes (continued)
Employee schemes (continued) BLACK EXEC BLACK MNGT BROAD-BASED EVERGREEN % value post trans 0.48 1.21 0.33 0.21 Option : share grant 75 : 25 90 : 10 0 : 100 N/A Vesting criteria 4, 5 & 6 years 4, 5 & 6 years 5 years N/A Duration 7 years 7 years 5 years Evergreen Black employees only Yes Yes No Yes 4
Slide 45: Employee schemes (continued)
Employee schemes (continued) " Targeted schemes: structured to meet differing profiles of various categories of employees & to align with needs of the business " Relatively large proportion of scheme 33% structured via share grants to employees - resultant higher economic benefit per share " Provide
Slide 46: Employee schemes (continued)
Employee schemes (continued) " Black Executive Trust (0.48%) – New & existing senior black managers - identified by position " Black Management Scheme (1.21%) – New & existing middle & senior black managers earning > R278k p/a " Broad-based Scheme (0.33% - 0.19% black) – Employees (black & white) no
Slide 47: Retail scheme
Retail scheme (2.17%) " In line with savings objective of FSC " Buy three shares at market price & receive a bonus share at end of vesting period " Pay for shares upfront or via debit order over time " Includes Peoples Bank, Old Mutual Bank & Pick ‘n Pay Go Banking clients " Capital guarantee – no d
Slide 48: Retail scheme (continued)
Retail scheme (continued) " Strict definition of clients that can participate: – Defined as black in FSC – 18 years & older " Must have or open a “primary” account with the Nedcor group, including a current, transmission or Mzansi account – Salary/wage (or other regular income) must be paid into acc
Slide 49: Corporate scheme
Corporate scheme (2.72%) " Commitment to assist new business development of participants " Black business clients & former Peoples Bank partners " Initially over 20 groups " Good faith commitments include reasonable efforts to: – Conduct transactional banking with Nedbank – Offer funding & advisory
Slide 50: Non-executive directors
Non-executive directors (0.18%) " Recognition of value-add & insight – retain skills " No performance agreements – independence not impaired " Participation in their individual capacities " Do not participate if they participate in other Nedcor schemes (except Retail Scheme) ! Alignment of directors
Slide 51: Community Trust
Community Trust (0.36%) " Further enhances Nedcor’s leadership in sustainable community initiatives – Nedcor rated second best corporate grant maker by NGOs & communities " Funded 25% by way of grant & 75% by way of loan - Trust can commence distributions in first year from dividends received " Init
Slide 52: Funding
Funding " Employee Schemes – Black controlled employee trusts created in each scheme – Funded by way of grants/interest-free loans – Dividends service interest-free loans 52
Slide 53: Funding (continued)
Funding (continued) Aka Corporate/ Black Bus. Retail Community Capital Non-execs Partners Issue price Par Par 2.5% of MV Par Par Upfront payment paid Par Nil (fully 2.5% of MV 75% of MV Nil (fully by participants funded) funded) Term 6 years 6 years 10 years 3 years 6 years Notional opening 75% of M
Slide 54: Funding (continued)
Funding (continued) " Business Development Partner (Aka Capital), Corporate Client, Non-executive Director, Black Business Partner, Retail Client & Community Schemes mechanics – Nedcor issues new ordinary shares at a nominal price – At termination, a calculation of terminal value is made, being orig
Slide 55: Funding (continued)
Funding (continued) " Advantages of funding approach include: – Structure easy to implement – Flexible structure – enables different funding instruments for each scheme – Relatively inexpensive – Ability to pass benefits to participants - attractive funding rates – Capital neutrality achieved (modes
Slide 56: Economic effects
Economic effects Rm Value of Nedcor (South Africa) post transaction 26 438 Value of Nedcor Ownership Plan 3 085 Less: white component of employee broad-based scheme (45) Black ownership portion 3 040 Black ownership portion as % of value of Nedcor (SA) 11.5% Estimated economic cost 968 Economic cost
Slide 57: Pro forma financial effects
Pro forma financial effects Nedcor year ended 31 December 2004 Before the After the % Cents transaction transaction change Attributable earnings per share (EPS) 270 270 (0.05) Headline earnings per share (HEPS) 401 400 (0.14) Ordinary shareholders’ equity (Rm) 18 095 18 177 0.45 Net asset value (NAV
Slide 58: An inclusive deal
An inclusive deal " 11.5% of the value of Nedcor’s SA businesses going to black shareholders throughout SA " Wide black stakeholder representation " Black partners will add value to the group " Clearly in line with strategies of: – Growing Retail – Expanding transactional banking – Transformation of
Slide 59: Mutual & Federal Transaction
Mutual & Federal Transaction Bruce Campbell 59
Slide 60: Highlights
Highlights " Direct black ownership worth 11.0% of Mutual & Federal " Includes 1 270 black staff participants " Unique Black Broker Trust " New Community Trust 36.3% Employees Black Business Partners 54.5% Intermediaries 4.6% Communities 4.6% 60
Slide 61: Proposed structure
Proposed structure Employees Black Business Distributors & Partners Communities Senior Broad- Black Black Management WIPHOLD Mtha Community based Broker Management Scheme Consortium Trust Scheme Trust Scheme 1.08% 4.79% 0.27% 3.50% 0.50% 0.50% 0.50% 11.14% deal post the issue of new shares – 11.00%
Slide 62: Employee schemes
Employee schemes Black Execs Management Management scheme Scheme Senior management Broad-based Middle & junior management Scheme Employees 62
Slide 63: Employee schemes (continued)
Employee schemes (continued) SENIOR BLACK MNGT MANAGEMENT BROAD-BASED % value post trans 1.08 4.79 0.27 Option : share grant 0 : 100 77 : 23 0 : 100 Vesting criteria 4, 5 & 6 years 3, 4 & 5 years 5 years Duration 7 years 8 years 5 years Black employees only Yes Yes No 63
Slide 64: Senior Black Management Scheme (1.08%)
Senior Black Management Scheme (1.08%) " Once-off share award to selected senior black management " For current & future employees " Senior black managers also entitled to participate in Management Scheme " Delivery after 4 years (1/3), 5 years (1/3), 6 years (1/3) " Shares forfeited on resignation
Slide 65: Management Scheme (4.79%)
Management Scheme (4.79%) " Replaces current management incentive scheme " Shares reserved for current & future black management " Combination of 50% share awards & 50% share options " Trust to be set up holding shares in Mutual & Federal " Funded by interest-free loans 65
Slide 66: Broad-based Scheme
Broad-based Scheme (0.13% black) " Once-off award of Mutual & Federal shares to the value of R7 500 " Permanent employees who do not participate in any other share scheme " Trust to be set up holding shares in Mutual & Federal " Shares transferred after five year period & can sell after this " Retai
Slide 67: Black Broker Trust
Black Broker Trust (0.50%) " Provide finance to set up black short-term insurance brokers in business " Assist in development of black brokers " Trust to be set up " Funded by loan ! Extension of intermediary-focused strategy 67
Slide 68: Community Trust
Community Trust (0.50%) " Provide finance to selected community projects " Trust to be established " Funded by a combination of a loan & a grant ! A new focus for Mutual & Federal 68
Slide 69: Funding
Funding Black Business Black Broker Community Partners Issue price 2.5% of MV Par Par Upfront payment paid by Issue price Issue price Issue price participants Term 10 years 10 years 10 years Notional opening balance 97.5% of MV MV less issue - price Notional rate (fixed, NACA) 8.16 +/- 1.5% of 8.16%
Slide 70: Funding (continued)
Funding (continued) " Black Business Partners & Black Broker Scheme mechanics – Trusts created for Black Broker Scheme – Special purpose companies created for each Black Business Partner – Trust subscribes for shares at par value - funded by Old Mutual – Black Business Partner special purpose compan
Slide 71: Funding (continued)
Funding (continued) " Community Scheme mechanics – Trust created for Community Scheme – Trust subscribes for shares at par value - funded by Old Mutual – Dividends utilised to settle Old Mutual funding & balance available for distribution by trustees 71
Slide 72: Funding (continued)
Funding (continued) " Advantages of funding approach include: – Structure easy to implement – No exposure to expensive third party financing – Avoid lengthy negotiations with third party funders – Flexible structure – different funding instruments for each scheme – Relatively inexpensive structure –
Slide 73: Economic effects
Economic effects Rm Value of Mutual & Federal post transaction 5 285 Value of Mutual & Federal transaction 663 Less: white component of employee scheme (8) Black ownership portion 655 Black ownership portion post the issue of new shares 11.0% Estimated economic cost 166 Economic cost as % of value o
Slide 74: Pro forma financial effects
Pro forma financial effects Mutual & Federal year ended 31 December 2004 Before the After the % Cents transaction transaction change Basic earnings per share (EPS) 467 472 1.07 Fully diluted basic earnings per share 463 430 (7.13) Headline earnings per share (HEPS) 475 480 1.05 Fully diluted HEPS 47
Slide 75: A new future
A new future " Broad-based deal " Nationwide reach " Employees receiving more than half the shares " A transaction in line with intermediary-driven strategy " Committed Black Business Partners 75
Slide 76: Conclusion
QQ OLD MUTUAL | plc A strong foundation. A new future.
Slide 77: What happens next?
What happens next? " Final approval of regulators " Circulars posted to shareholders " Extraordinary general meetings - require 75% approval of ordinary shareholders of: – Old Mutual plc – Nedcor – Mutual & Federal " High Court approval " Board appointments 77
Slide 78: Objective
Objective " Building a world class financial services group off our strong South African base " Underpinning growth in our South African client base through BEE ownership " Securing the future strength of our South African businesses 78
Slide 79: Building for the future
Building for the future " Transformational deal that secures future returns for all stakeholders " Breadth of involvement – 500 000 potential beneficiaries – Employees, clients, distributors & intermediaries – Leading entrepreneurial BEE groupings & their many participants " Each of these transactio
Slide 80: Questions?
QQ OLD MUTUAL | plc A strong foundation. A new future.
Slide 81: Thank you
QQ OLD MUTUAL | plc A strong foundation. A new future.