2010-03-31
JOHANNESBURG (Reuters) - South African insurance firms Metropolitan and Momentum, an unlisted unit of banking group FirstRand, said they would join hands to create a $4 billion dollar insurer through an all-share deal.

The deal between Metropolitan, South Africa's fifth-largest insurer by market value, and larger rival Momentum is likely to create South Africa's third-largest insurance group with a market value of up to 30 billion rand, executives from the two companies said on a conference call.

The two sides said the combined company would benefit from enhanced growth opportunities and economies of scale.

"On the face of it, it's a good deal. The two businesses complement each other very well," said a Johannesburg-based analyst not authorised to speak to the media. "There will be lots of opportunities to cross-sell within the new group."

Metropolitan operates in low to middle-income markets, while Momentum focuses on upper-income retail customers.

Although smaller Metropolitan will technically acquire Momentum, analysts said the ownership structure favours the larger firm.

"On a shareholder level, it looks like Momentum is taking Metropolitan," said another Johannesburg-based analyst, who also was not authorised to speak to the press.

Metropolitan will issue 950 million new shares to FirstRand in exchange for Momentum. The bank will then pass on its stake in Metropolitan to its shareholders, who will own about 60 percent of the combined insurance firm. The remainder will be held by current Metropolitan shareholders.

Laurie Dippenaar, currently the non-executive chairman of FirstRand, will be the chairman of the new firm.

EMBEDDED VALUE

No price was given for the deal but the companies said the number of new Metropolitan shares issued to FirstRand was be determined by embedded value, a common valuation of life insurance firms that takes into account the value of net assets and future profit.

Momentum had an embedded value of 17.8 billion rand as of the end of December, while Metropolitan had an embedded value of 12 billion rand.

FirstRand, South Africa's second-largest lender, said the disposal of Momentum would allow it to focus on its mainstay banking businesses.

FirstRand's investment banking arm, RMB Holdings said it may create a separately listed insurance firm from its stake in the new merged company and its holdings in insurers Discovery Holdings and Outsurance Insurance Co.

RMB said its insurance unit would likely own about 18 percent of the company created from Metropolitan and Momentum but that it could up its stake to under 35 percent.

Metropolitan shares ended the session 11.79 pct higher at 16.88 randand and FirstRand was up 0.75 percent at 20.19 while the Johannesburg's All-Share index was flat.

Between them the two insurers have a presence in 12 countries in Africa.