Skandia to rev up rebates and block Old Mutual takeover bid

Fund managers on the Australian Skandia platform are likely to face an even tighter squeeze on their margins as the group’s global parent goes into overdrive to fend off a hostile takeover bid from South African financial services giant Old Mutual.

In a communiqué to shareholders released late in October titled ‘A strong business with an exciting standalone future’, Skandia laid out its so-called Turbo Plan “to capture synergies in all areas of the business”, which include a strategy to negotiate higher “retrocessions” (rebates) from fund managers based on global volumes. Ross Laidlaw, Skandia CEO in Australia, said the group currently negotiated fees with fund managers on a more localised level and he supported the move to using its “global leverage”. “Turbo makes sense,” Laidlaw said yesterday. “Skandia has the same business model around the world, we use the same platform and we are one of the largest third-party buyers of funds… it [the Turbo Plan] could save Skandia (as a group) over $A200 million.” In Australia Skandia has grown its funds under management to over $A3.3 billion while the group globally manages about $A160 billion. In the Turbo Plan, Skandia also flagged the housing of the group investment research division in one location, however, Laidlaw said this did not mean Skandia’s Australian research team of Will Burkitt, Jodie Fitzgerald and Rodney Sebire, would be disbanded. “Our research division is very strong,” Laidlaw said. Skandia has used its proposed Turbo Plan savings along with other arguments to convince its shareholders that Old Mutual’s bid, which values Skandia at SEK43.5 billion ($A7.25 billion) was inadequate. Skandia has vigorously disputed Old Mutual’s cash and share offer, which launched on September 2 and is due for final acceptances on November 21 this year. Initially, Old Mutual indicated it would seek 90 per cent acceptance but has since lowered its objective after an estimated 15 per cent of Skandia shareholders, including most of the Swedish pension funds which have invested in the group, rejected the offer. Laidlaw said Skandia’s biggest institutional shareholder, Fidelity, which owns about 10 per cent of the dual Stockholm/London-listed company, was also against the takeover bid. Old Mutual, South Africa’s largest insurance company, shifted its primary listing and headquarters to London in 1999 and is looking to broaden its geographical presence with Skandia, which operates largely in different markets. As well as its insurance operations, Old Mutual also has interests in several fund management groups, including the boutique manager Acadian, which it inherited after its purchase of Boston-based United Asset Management for $US2.2 billion in 2000. Acadian is available to Australian retail investors on Colonial’s FirstChoice platform. According to Laidlaw, even if the Old Mutual bid for Skandia was successful, he expected it would be “business as usual” for the Australian operation. In its report on the Old Mutual bid, Skandia describes the Australian business as “one of its most successful start-ups”. Laidlaw said Skandia Australia was on track to break-even by the end of 2005.