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Old Mutual sells US life operations for USD350m

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Old Mutual has agreed to sell its US life operations to affiliates of Harbinger Capital Partners for a consideration of USD350m (GBP220m).

Old Mutual has agreed to sell its US life operations to affiliates of Harbinger Capital Partners for a consideration of USD350m (GBP220m).

Completion is anticipated on or after 31 December 2010 and is subject to relevant regulatory approvals.

The financial impact of the transaction is expected to be an increase in MCEV of GBP718m or 13.2p per share and an IFRS net asset write off of GBP689m or 12.7p per share based on the group’s unaudited financial statements as at 30 June 2010.

After the expected adjustment based on statutory capital at completion and costs of the sale process, estimated net proceeds are USD364m. Proceeds will be paid in two tranches in accordance with the sale contract, the final payment to be made six months after closing. The disposal will also permit the redeployment of capital from the associated captive reinsurance company.

Net proceeds will be applied to reduce group net debt.

The transaction results in a significant reduction in the group’s exposure to US credit markets, and a corresponding reduction in economic capital at risk. Although the final impact on group FGD surplus will depend on the final net receipts from the transaction, the reduction in group FGD surplus is estimated to be approximately GBP0.1bn. The disposal will materially reduce the future volatility in the FGD capital at risk, particularly in extreme stress events.

Old Mutual announced its intention to explore the sale of its US life operations as part of its strategic review on 11 March 2010.

Julian Roberts, Old Mutual group chief executive, says: “I am delighted to announce the sale of our US life business. This deal marks further progress towards our strategic objectives of simplifying the group, lowering our risk profile and improving our returns on equity”.

Philip Falcone, chief executive of Harbinger Capital Partners, adds: “The purchase of Old Mutual’s US business is an attractive proposition. As a result of our extensive review of Old Mutual’s US business, we believe the company is well capitalized to meet its obligations to policyholders. We expect to realise substantial returns from continuing business improvements and Harbinger’s ability to enhance the value of the asset portfolio. In addition, we are fortunate to have Leland C. Launer, Jr. on board to serve as chairman and chief executive of this business. As a former executive vice president and chief investment officer of MetLife, Lee is one of the industry’s most experienced and respected executives to take the company forward.”

Old Mutual has also released its first half interim results, which show that profits for the six months to June rose to USD1.2bn from USD814m in the first six months of 2009. The adjusted operating profit before tax is up 43 per cent.

APE sales are up 28 per cent to GBP814m and funds under management are up three per cent from 31 December 2009.

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