Old Mutual investors have to ask themselves how anyone at Old Mutual thought it okay to hire Peter Moyo as a chief executive officer a few years after the insurer had invested in his start-up NMT Capital. The same investors should ask questions about the appointment of Trevor Manuel to chair the board at a time when he was embedded in the leadership of Rothschild, a major supplier and adviser to Old Mutual.
It is a complicated and incestuous set of relationships from which nobody will emerge smelling of roses. A sustainable solution might be to release them both. The Moyo story starts with the founding of NMT Capital by Moyo and partners Sango Ntsaluba and Thabiso Tlelai in 2002 (NMT probably represents their names: Ntsaluba, Moyo and Tlelai). Two years later, in 2004, Old Mutual paid R5.5-million for a 20% stake in the investment house.
Granted, this investment in NMT Capital was small change for Old Mutual, and a general manager in the insurer’s Specialised Finance subsidiary would not even need a committee to sign it off. But the seed of future conflict of interests – and conflict in the boardroom – had been planted.
Three years later, Old Mutual subscribed for R46-million worth of preference shares in NMT Capital, to help its Amabubesi Investments to participate in Growthpoint Properties’ R1-billion BEE transaction in 2005, according to court papers in the ongoing tussle between Moyo and the Old Mutual board. This was equivalent to 14.2% of the issued shares in Growthpoint. Old Mutual, through a private equity fund, advanced a further R150-million to NMT Capital.
Growthpoint’s original announcement shows NMT’s stake at the inception of the BEE deal was valued at R338-million, a third of the total value. This BEE deal was a huge success for both NMT Capital and Old Mutual. Since the 2005 BEE deal, Growthpoint has paid dividends totalling R18.586 per share. This means NMT Capital received gross dividends totalling R619.5-million. From this, you strip off funding costs and tax.
Old Mutual Specialised Finance, Absa Group and Investec Private Bank all contributed funding to the BEE consortium. Growthpoint itself pitched in mezzanine funding of R204-million of the total R1-billion to make the transaction a success. Of course, the funders did not do it for free. Growthpoint was entitled to 40% of the upside at the settlement of the debt.
As one can deduce from these numbers, stakes were high from the beginning. The founders of NMT Capital, of which Moyo was one, stood to gain a lot from this transaction. And gain they did. But greed, a natural human condition, was always going to rear its head at some point. Old Mutual, too, stood to profit handsomely from the relationship. And handsomely it profited. Enter Trevor Manuel and Rothschild. Before the general election of 2014, Manuel announced his retirement from the government, where he had served as Minister of Finance for 16 years and later as the minister responsible for the national planning commission.
He also retired from active politics and entered the private sector. Rothschild & Co, the global financial advisory group, was among the first major companies to snatch up Manuel, to join its ranks as a senior global adviser and deputy chairman of its South African unit – which had a responsibility to entrench the franchise deep into the African continent. Swiss Re, the Swiss Reinsurance Company, also took Manuel on to its global board in 2015. Old Mutual Plc, as the London-listed company was before an unbundling into four companies, was slower off the mark, appointing Manuel to its board in January 2016. Such appointments are quite lucrative and are worth defending.
For his trouble, Swiss Re says it paid Manuel directors’ fees amounting to the equivalent of R5.2-million in Swiss francs in 2018. Last year Old Mutual paid Manuel R7-million in board fees. In 2017 Manuel was paid £420,000 at Old Mutual Plc (R7.7-million at today’s exchange rate). All this pales in comparison to what was at stake for Rothschild & Co, Manuel’s primary employer since late 2014. His Rothschild package is undisclosed. Moyo was paid R35.6-million for his work at Old Mutual in 2018. His stake at NMT Capital, funded with an Old Mutual loan and equity investments about 10 years earlier, paid him another R31-million in dividends. These are seriously big sums of money.
The capitalist in me refuses to blame any man for successfully and profitably selling his labour. One with justice may not condemn a businessman for succeeding because he knows how to negotiate his fee but my whole being rebels at these obscene amounts paid to executives in the face of so much poverty. I digress…
By accepting his appointments in Old Mutual Plc and Old Mutual Ltd, Manuel got onto both sides of the deal. He was a senior global adviser to Rothschild & Co and deputy chairman of its South African unit, which was already deeply embedded as an adviser to Old Mutual. Old Mutual said in its managed separation documents it expected transaction costs of unbundling itself into four companies to be more than £100-million – when the series of transactions to unbundle stakes in Nedbank, list Quilter and sell what was known as Old Mutual Asset Management was complete.
That is R1.85-billion in transaction fees. As a global adviser, Rothschild expected to earn a significant amount of this. In his court papers, fighting to return to his CEO job, Moyo latched on to this, accusing Manuel of “a triple conflict of interest” – for the latter’s roles as an adviser to Rothschild globally and deputy chairman in South Africa, chairman of Old Mutual Ltd and a director of Old Mutual Plc. Moyo correctly pointed out that Rothschild stood to gain millions in fees from its Old Mutual work. He said Manuel was thus conflicted. Moyo, however, was also conflicted in his dealings with Old Mutual since he became chief executive in 2017. As shown above, his investment company stood to make hundreds of millions in its dealings employing Old Mutual’s money at Growthpoint.
The court accepted Moyo’s version that when NMT Capital finally liquidated its Growthpoint investment in 2018, its directors, in a meeting chaired by Moyo in July, resolved to pay dividends totalling R105-million to themselves as shareholders, including R27-million to Old Mutual. Moyo pocketed R31-million for his stake in NMT. The court also accepted Moyo’s version that R37-million was to be paid towards debt servicing costs to Old Mutual’s preference shares, among other things. Moyo has been fired by a unanimous decision of the board, based on what the board holds is his unacceptable conduct in which he favoured his own personal interests ahead of those of Old Mutual in the matter of the NMT Capital dividends.
The conflicts of interest, perceived or real, run deep when it comes to both Moyo and Manuel. Of course, Manuel insists he’s always played by the rules, recusing himself at all material times when matters that might affect Rothschild’s interest were discussed at Old Mutual. Nobody denies this, although Moyo says his pointing out of Manuel’s conflict of interest is the real cause of his own troubles with the board.
This all amounts to a conflation of interests on both sides, an undesirable situation that should never have been allowed to develop. What strategists at Old Mutual, as well as shareholders, need to ask themselves is, how they did allow it. With his primary interests at NMT Capital funded with Old Mutual’s money, Moyo should not have been hired as CEO at the insurer. Similarly, with his interests at Rothschild, Manuel should not have been drafted onto the board of Old Mutual, let alone as chairman. BM
"Each man believes on his experience" ~ Empedocles