BusinessCorporate FinanceIFRS and shares deal hit Old Mutual

IFRS and shares deal hit Old Mutual

Black empowerment deal and global standard cuts Old Mutual's EPS

The dilution of share earnings caused by new international accounting standards will be exacerbated at FTSE100 life assurer Old Mutual because of a major redistribution of wealth to black South Africans.

Link: Old Mutual boosted by South African standard

Last week, the company told the market that earnings per share would be diluted by 5.7% because of ’empowerment transactions’.

EPS will be watered down even further when the company’s IFRS restatement, prepared by the FD Julian Roberts, reveals the additional impact of share-based payments.

Empowerment transactions involve transferring ownership of shares in South African businesses to black South Africans, and were introduced after the ANC came to power in 1994.

With three of its major subsidiaries ðNedcor, Old Mutual SA and Mutual & Federal ð based in South Africa, Old Mutual is a signatory to the financial services charter. The charter provides a blueprint for the transformation of the financial services sector and is a crucial part of the redistribution of wealth to all South Africans.

The charter stipulates that, by 2010, financial services companies will have to be at least 25% black-owned, of which 10% or more has to be direct.

In order to meet these obligations, Old Mutual issued shares worth R7.1bn (£621.4m) to black employees, distributors, clients and its business partners ð the Wiphold and Brimstone consortia.

The life assurer’s chief executive, Jim Sutcliffe, said: ‘Our proposals are good business sense ð they build our customer base, incentivise our employees, and add the strength of our partners towards the achievement of our strategy.’

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