Financial services firm Alexander Forbes is set to emerge as the biggest loser in a deal that would see it dispose of its short-term insurance business to Sanlam, with Alexander Forbes’s second-biggest shareholder African Rainbow Capital (ARC) said to be front and centre of the deal.
ARC is a wholly owned subsidiary of Sanlam’s biggest shareholder, Ubuntu-Botho, the investment vehicle of business magnate Patrice Motsepe, who also serves as Sanlam’s deputy chairperson.
Sources at Alexander Forbes said the push for the deal to be concluded was the main reason erstwhile chief executive Andrew Darfoor was ousted from the position last year after he had resisted attempts for the group’s exit from the short-term insurance business, which formed a key pillar of his Ambition 2022 strategy.
The source said the sale of the Alexander Forbes short-term insurance business to Sanlam’s subsidiary, Santam, would cost in the region of R1.5 to R2billion.
“The short-term insurance business has been a solid growth engine for Alexander Forbes and covers an element of fixed costs. Any sale of this would, therefore, be counter-intuitive to the notion of shareholder value creation,” the source said
The mooted sale of the asset comes despite the Alexander Forbes board just last year showing faith in the growth prospects of the business and the overall Ambition 2022 strategy crafted under Darfoor’s watch with improving results being delivered.
The minutes of a board meeting held on March 8, 2018 show that the board had expressed confidence in the business.
“In response to a question on the impact of this proposal on short-term insurance, it was confirmed that the short-term insurance business was a positive revenue contributor, with double-digit and anticipated improved future growth and, hence, any decision on retail life should not impact the short-term insurance strategy,” the meeting concluded.
Alexander Forbes chairperson Nonkululeko Nyembezi, in an emailed response, said the group had reiterated its commitment to the broader strategy of growing the business of Alexander Forbes in its core market segments.
“Commenting on merger and acquisition rumours in respect of two listed entities is not permitted. If there are any matters the group is required to announce on the Stock Exchange News Service, it shall do so without delay,” Nyembezi said.
Sanlam in a statement said: “Sanlam does not comment on market speculation about any of its business activities.”
Business Report has it on good authority that ARC co-chief executive Johan van Zyl, who also wears the hat of Sanlam chairperson and chief executive of Ubuntu-Botho, is instrumental in seeing the deal through.
In an emailed communication to some Alexander Forbes board members in 2017, Van Zyl made it clear that Alexander Forbes must stay out of the general insurance space.
“Alexander Forbes would be swimming against the current and would be unlikely to win in the capital-intensive game,” Van Zyl wrote.
“Therefore, my suggestion is that you sell your general insurance book to another player of scale. In this way, you will not only get good money for your book (my high-level guess is substantially more than R1bn, and probably even more), which can be either returned to shareholders or used for focused acquisitions in areas where you can win.”
Van Zyl is not a member of Alexander Forbes.
Van Zyl referred all questions directed to ARC to Ainsley Moos, corporate and stakeholder relations at the group.
Moss said any talks between ARC, Alexander Forbes and Sanlam were of an exploratory nature.
“ARC is an investment holding company and we naturally have regular talks with the leadership of companies we have invested in. These talks focus on strategy, operations, financial performance, potential funding requirements and so forth,” Moss said.
Asief Mohamed, the chief investment officer at Aeon Investment Management, said new Alexander Forbes chief executive Dawie de Villiers appears to be the proxy of Sanlam with Van Zyl.
“I am surprised that the Competition Commission has not woken up to this de facto ‘takeover’ or control of Alexander Forbes by Sanlam’s influential shareholders. Less competition in the retail sector will most likely increase the pricing of retail financial products,” Mohamed said.
The ousting of Darfoor in September last year saw Alexander Forbes swiftly appoint the then-Sanlam executive De Villiers, a startling outcome, given that his name did not feature on the succession plan approved by the company’s board earlier that month.
Former Liberty chief executive and current Alexander Forbes independent non-executive director, Thabo Dloti, was anointed the next in line in the group executive succession plan.