Old Mutual’s Hostile Takeover of Skandia
Chapter 8: Working for a Stand-alone Case or Heading for a Structural Deal?
INTERNAL PROBLEMS In late April 2004, Skandia had a market capitalization of 30 billion SEK (equivalent to 30 SEK per share). According to the embedded-value model, this valuation reflected a slight premium compared to the consolidated capital. Financial analysts, who decided to include the present value of future cash flow of projected new sales in the valuation, arrived instead at 40 billion SEK. The business weekly Affärsvärlden1 claimed that ‘no one’ would want to pay that much for Skandia. The risk built into the Skandia business model, largely in the hands of independent financial advisers (IFAs), was deemed too high. However, the risk of a downturn was argued to be lower than previously. During the first quarter of 2004, Skandia’s sales of unit-linked assurance and mutual funds increased to 25 billion SEK, which corresponded to a rise of almost 50 per cent in local currency compared to the previous year. By that time, Skandia’s cash flow was more or less in balance. Affärsvärlden also wrote that CEO Andersson had to successfully manage a Skandia turnaround and, if he did not deliver the expected results, the board – led by Chair Magnusson – would probably sell (parts of) Skandia. The growth in the world economy and the improvement of Skandia figures did not, however, hide the fact that the Skandia group was unbalanced; it was structured into three groups: the Nordic region; Skandia Life UK including the offshore subsidiary Royal Skandia; and continental Europe, along with countries in Latin...
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