Johannesburg - Santam, Sanlam's majority-owned short-term insurer, said it would be buying back 10 percent of its owns shares at R1.2 billion to facilitate the sale of a stake in the firm to black economic empowerment investors.
According to the Santam offer, shares tendered by shareholders would be bought for R102 a share. Sanlam said it would offer to buy excess shares tendered by Santam shareholders.
This would, however, be subject of the parent company not owning more than 80 percent of Santam.
The offer by Santam to buy back 10 percent of its shares represents an 8.5 percent premium to the volume weighted average price of R93.98 a share over the five trading days up to last Friday. The insurer said subject to successful implementation of the repurchase offer, it would sell a 10 percent stake to black investors at R82 a share, representing a discount of 10.2 percent discount on the volume weighted average price of R93.98 for the five trading days to last Friday.
Chris Naidoo, an analyst at Metropolitan Asset Managers said the Santam share buy-back would reduce the insurer's share tradeability. Relative to its peers Santam's shares had been the most tradeable.
Naidoo said the repurchase offer was an opportunity for Sanlam to increase its stake in Santam. Last year, Sanlam abandoned plans to buy shares it did not already own.
However, according to Mduduzi Ndlovu, the chief investment officer at Argon Asset Management, the Santam offer "is almost daylight mugging" because minorities are being asked to sell at R102 a share or sell at R82 a share later to black investors.
Steffen Gilbert, Santam's chief executive, said that the repurchase offer had been precipitated by two pressing issues, which include excess capital and black economic empowerment. The proposed transaction would help reduce solvency to 40 percent.
Meanwhile, Santam said it would finance the share buy-back from its cash and near-cash assets. The insurer said its operations generated R2.2 billion in cash for the year to December. Net premium income rose 14 percent to R10.684 billion, while earnings rose 1 percent to R15.55 a share.
The firm said its solvency ratio, a measure of the company's ability to settle its obligations, increased from 61 percent to 62 percent, while net asset value increased from R49.27 to R56.34 because of increased profitability.
Santam shares increased 3.09 percent to end the day at R101, while the non-life insurance sector rose 1.5 percent.