Old Mutual’s Hostile Takeover of Skandia
Chapter 14: Old Mutual’s Friendly Bid
TROUBLE WITH FINANCING THE BID Two options were presented in Old Mutual’s original indicative bid, compiled by Deutsche Bank on 12 May 2005: either 48 billion SEK in Old Mutual shares or 45 billion SEK in cash and shares (where the cash component could be in the range of 50 to 66 per cent of the offer). Old Mutual’s board decided during the early summer that the company should offer a 50–50 allocation of cash and shares. The plan was that Deutsche Bank would help Old Mutual raise the required cash in the market, but the possibility of a large rights issue was ruled out very early in the process. With the initial negative stock market reaction, it was argued that a rights issue would be difficult to combine with a share offer (since the former was likely to depress the value of the latter). Old Mutual board adviser Lazard1 warned about such a drop in the share price. The South African exchange control regulations also made it difficult for the South African shareholders to participate. While preparing the bid financing, Old Mutual instead asked Deutsche Bank to stretch the debt issue to the maximum that might be accepted by credit-rating agencies Moody’s and Fitch.2 The financial and treasury team at Old Mutual had decided not to talk to Moody’s and Fitch until a relatively late stage, arguing that it was best not to worry the credit-rating institutes. Old Mutual management had publicly stated that it targeted a high...
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