Sanlam marks its 20th anniversary as a listed company on 30 November – a huge milestone in the Group’s history.
‘We’re proud of the 20-year listing – in our centenary year,’ says Group CEO Ian Kirk.
‘Traditionally companies list to raise capital. We raised at the outset but haven’t done so again for 20 years – we’ve actually released capital. We’ve built our investment proposition by using our solid businesses in SA to develop in international territories where we believed we could make a difference.’
Chairman Johan van Zyl says Sanlam’s listing was a massive milestone. ‘We started as a mutual business, not really geared to compete with others. It’s very different when you see your share price every day and you have to compare it. Sanlam has entered that competition by really striving to be world-class – and we haven’t done too badly.’
Here’s why and how Sanlam took this big step in 1998.
- The SA financial services industry was going through a period of consolidation and increasing competition. This led to large specialist financial services companies transforming into broadly based financial services groups able to provide clients with a comprehensive package of financial products, both domestically and internationally.
- As a mutual company, Sanlam relied on internally generated capital to develop its business – a structure that had served Sanlam and its policyholders well in the past. However, due to market changes, the structure was constraining the profitable development of Sanlam’s activities.
- As a shareholder-owned company, Sanlam would have access to external sources of capital as well as internally generated capital to fund the continued growth of its business. As a result, the Group would be better placed to transform itself into a broadly based financial services group to the benefit of its policyholders and shareholders.
From whom was approval needed?
- Policyholders – Sanlam decided if it didn’t achieve a 75% approval from policyholders, the process would not proceed
- The relevant authorities.
The Sanlam Demutualisation Trust was established on the day the High Court order sanctioned the demutualisation. The Trust would hold the shares for members without confirmed addresses – and a rigorous process was set in motion to trace them, including mail projects, telephone searches and identification searches in collaboration with the Department of Home Affairs.
The Trust was finally closed down 10 years later on 22 October 2008 – the last day eligible shareholders would be able to claim their shares.
In its 10 years of operation the Trust managed to trace and release shares to more than 500 000 shareholders.
By the time the Trust was disbanded, all but 1% of the originally allocated free shares had reached their rightful owners.
A significant step
The demutualisation and listing of Sanlam was a mammoth task and the beginning of an exciting new era as a diversified financial services group. George Rudman, at the time Executive Director: Demutualisation, steered the demutualisation process. He shares his memories.
What led up to Sanlam’s demutualisation?
I think the seed was planted in the 1984 annual report, which envisaged strong expansion of the Sanlam Group following the decision to take control over Group investments. Marinus Daling had to establish Sankorp to better manage our so-called strategic investments, while Pierre Steyn took control of the life business. This prepared Marinus for the non-mutual world.
Dr Fred du Plessis, Chairman and MD at the time, had the insight to separate those roles, which prepared the ground for the demutualisation and listing of the company some years later.
In the early ’90s I received two instructions from Pierre, who became MD after Dr Fred’s death:
- To find ways in which the business could measure and control profit
- To visit life insurers in other countries so as to stay abreast of global developments in the industry.
By the mid-’90s demutualisation had globally become popular among life insurers comparable to Sanlam. When we decided to do the same, we could tap in to their experience.
Demutualisation was a complicated exercise with no real comparable local examples to learn from. Listing, on the other hand, happened almost daily, although Sanlam’s listing set a new record in South Africa in terms of the number of shareholders involved.
How significant was the change from a mutual company that belonged to its policyholders to a listed company belonging to shareholders?
It was a fundamental change – one that was absolutely necessary at that stage because of changes to products, legislation and the way we operated as a business. Until then we’d measured ourselves in terms of business volumes and low costs. With the listing, the scoreboard changed completely to one where profit, growth and share price determine market opinion.
The listing also made it easier for product providers to operate independently.
How did you approach the task?
When Marinus, who became MD after Pierre’s death, tasked me to lead the demutualisation project, he asked me who I planned to appoint first: consulting actuaries or investment bankers. I said actuaries, although I knew he would differ. But I convinced him and we appointed the actuaries to start the process.
In a memorandum to the board, the consulting actuaries recommended demutualisation and listing as a strategy for Sanlam to capitalise on the opportunities presented by changes in the financial services environment. The board accepted these recommendations, which were supported by management, and that kick-started the process.
Marinus then asked Attie du Plessis to lead the listing process. So we walked a dual road from the start, with Attie focusing on the listing part of the process.
It was a complex, extensive process – how many people were involved?
We were a project team of 40 to 50 people, including the external consultants. I can confidently say we had the best team on board to guide us – an experienced team hand-picked from the UK and Australia.
The internal Sanlam team was just as formidable. We didn’t have the demutualisation experience but all involved were A-team players. Our actuaries, accountants, legal and tax professionals all played leading roles in Life Offices’ Association committees and had good working and trusted relationships with decision makers in the Financial Services Board (FSB) and South African Revenue Service (SARS). This proved to be extremely valuable during the process.
Why was it crucial to complete the process within a set time?
We wanted to finalise the process ahead of the 1999 general election so as to avoid the ‘election noise’ in the media at a time when we needed the limelight and before any Y2K* threat materialised.
We also knew that our competitor Old Mutual had similar plans, although we didn’t know how far they were in the process.
Because we realised the JSE couldn’t handle both companies listing close to each other, Marinus and I visited Mike Levitt, then CEO of Old Mutual, to ask what his company’s plans were as far as timing was concerned. The only answer we received was, ‘We will march to our own drum.’
To avoid their plans delaying our timetable, we had to finish ahead of them. Our advisers also believed we’d benefit by listing first.
It took 10 months from the time we announced the decision at end-January 1998 until Sanlam’s listing on the JSE and Namibian Stock Exchange on 30 November 1998.
Old Mutual eventually listed on the London Stock Exchange a year later.
As Marinus rightly said, ‘We were first, although it wasn’t a race.’
Thinking back, what stands out from this major event?
The energy of the team involved and the wonderful spirit of cooperation. I didn’t have to motivate the team – the adrenaline kicked in on day one and everybody worked together towards one common goal: to finish this complicated, but exciting task on time. Every team member understood their role and gave it their all – sometimes even by working through the night.
Although many team members focused solely on the demutualisation process, many had to do it on top of their normal work.
The excellent relationships we had with key stakeholders such as the FSB, SARS and the other governmental bodies also contributed to the success.
What were the biggest hurdles?
To get legislation changed on time so as to allow Sanlam to change from being a mutual company to a listed one, was a major challenge.
Another huge challenge was the volume of voting papers we had to send to our more than 2,2 million policyholders. We trucked the voting papers to the major cities and mailed them from various post offices to get them to the voters on time.
And then, at the last board meeting, just prior to the final documents being signed, one of the board members insisted the external consultants accept full responsibility for the demutualisation before I was allowed to sign the final document. The consultants were not willing to do that – and I completely understood their position. So in the end, with time running out, I took full responsibility and just signed the document.
A major hiccup did happen after the listing – the telephones started to ring non-stop. Some policyholders wanted to sell their shares, but hadn’t received the relevant communication or had received the wrong communication. It was chaos. We didn’t have enough telephones and staff to handle the situation and didn’t know what had gone wrong.
As a result, the share price took a knock before we discovered what the problem was. A program error had caused the havoc – in the process of verifying the personal details of all policyholders, address changes were made to the wrong records. Once we identified the problem, it was a quick fix.
Twenty years later, how do you feel about Sanlam’s performance as a listed company?
It was all worth it! The demutualisation and listing of the company has given Sanlam wings. A look at the share prices of Sanlam, Liberty, MMI and Old Mutual since demutualisation to date proves the point.
However, an undisputed fact is that Sanlam didn’t have to demutualise because of a lack of capital. We even gave excess capital back soon after demutualisation by way of share buy-backs.
The demutualisation and listing was one of the biggest milestones in Sanlam’s 100-year history. The fact that we chose to list on the JSE indicated then and now that Sanlam is a proudly South African company whose future lies where our roots are – in Africa.