Alexander Forbes attracts a major investor

Marylou Greig
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Alexander Forbes closed 24.5% higher on Friday on the news of a new strategic shareholder coming onto the register.

Prudential Financial, listed on the New York Stock Exchange (NYSE), is acquiring a 15.1% stake in Alexander Forbes (net of treasury shares) from Mercer Africa, a subsidiary of Marsh McLennan Companies Incorporated, which is also listed on the NYSE. That’s a bit of a mouthful, I know.

Don’t make the mistake of confusing this with South African company Prudential, which has subsequently rebranded to M&G Investments. The two are unrelated.

Prudential Financial is 145 years old and has more than USD1.5 trillion in assets under management. The company has a USD350 million strategic investment partnership with LeapFrog Investments to invest in high-growth markets for financial services in Africa. South Africa isn’t really a high-growth market, so there’s a broader African investment thesis going on here. Alexander Forbes services multinational employers across 32 African countries.

We should at least give ourselves a pat on the back for having a solid financial services industry. One major international shareholder is selling and is being replaced by another, which is a show of faith in our country.

To finish thoroughly confusing you with all this prudence going around, the deal with Mercer is subject to approval from the Prudential Authority within the SARB. There are other regulatory hurdles to jump as well, because the South African financial services space is extremely highly regulated (generally a good thing).

In addition to this transaction and assuming it goes ahead, Prudential Financial will make a partial offer to shareholders such that its stake in Alexander Forbes can increase to up to 33% of the issued shares. This is less than 35% and won’t trigger a mandatory offer for all the remaining shares.

ARC Financial Services has already said thank you, but no thank you, so it will be holding on to its 40.6% stake (net of treasury shares) in Alexander Forbes and declining any future offer. The ARC structure is extremely complicated. As a reminder, ARC Investments (the listed ARC company) holds a 49.9% stake in ARC Financial Services via the ARC Fund. If you hold ARC shares, you indirectly hold a stake in Alexander Forbes.

The closing price on the market on Friday was R4.68 and Prudential Financial will pay Mercer R5.25 per share, adjusted for any dividends paid by the company prior to closing. This price is a 26% premium to the 180-day volume weighted average price (VWAP), a meaty premium for a significant minority stake.

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