FMHL, Nicoz deal under threat

THE acquisition of NicozDiamond by First Mutual Holdings Limited (FMHL) could collapse after a major shareholder in the shortterm insurer reportedly decided against disposing of its stake in the company.

This comes hard on the heels of a High Court ruling that nullified transactions made by three former Renaissance Financial Holdings Limited (RFHL) directors who facilitated the possession of FMHL by the National Social Security Authority (NSSA), even after they had been sacked by shareholders. The judgement could effectively scupper the planned transaction, which involves acquisition of NicozDiamond by FMHL.

Sources this week said the Zimre Holdings Limited (ZHL) board had resolved at a meeting held last week to maintain its 30 percent interest in NicozDiamond, the country’s largest short-term insurer. ZHL’s stake was part of an 80,92 percent NicozDiamond shareholding that FMHL was planning to acquire under a share swap deal in which NicozDiamond shareholders were to receive one FMHL share for every 5,02 NicozDiamond shares held.

The 80,92 percent stake was split between ZHL, which has a 30,03 shareholding, and the National Social Security Authority (NSSA), which holds a 50,89 percent interest. NSSA is the architect of the transaction, which was reportedly prompted by ZHL’s rejection of a proposal by the compulsory pension fund to give its shareholding in NicozDiamond to ZHL, in return for control of the conglomerate. The ZHL board had rejected this proposal largely because it diluted shareholders who acquired a 42 percent stake in the company a few years ago. The ZHL board had also felt that the shares NSSA wanted to sell to the company were overpriced.

The Financial Gazette could not immediately establish the motive for ZHL’s latest decision on the proposed transaction with FMHL, which has had a troubled past, characterised by shareholder squabbles since its demutualisation at the start of the millennium. A source only disclosed: “The ZHL board sat last week and rejected the NSSA-FMHL offer. What this means is that the merger cannot go ahead.”

The ZHL chief executive officer, Stanley Kudenga, declined to comment, saying they were currently “trading under cautionary”. In an interview in June, he had told TheFinancial Gazette when asked if ZHL would sell its stock or retain its interest after the FMHL takeover: “We’ll make a decision on where our interests are best served, either exiting (NicozDiamond) or remaining under FMHL.” ZHL had indicated its desire to strengthen its interest in NicozDiamond, but Kudenga had admitted that they had “failed to achieve that”.

NSSA’s plan is to bring NicozDiamond under the control of FMHL would merge the new acquisition, which has a capital base higher than $12 million, with its own short-term insurer, Tristar Insurance Company that has a capital base of just over $2 million. In return, NSSA would shore up its interest in FMHL to 60,71 percent, from 50,95 percent. ZHL was to get a stake in FMHL for its shareholding in NicozDiamond.

Upon conclusion of the deal, FMHL would make a mandatory offer to minorities with 19,08 percent shareholding in NicozDiamond in terms of the Zimbabwe Stock Exchange listing rules to gain absolute control of the company. Although FMHL had received shareholder approval to consummate the deal, it would still require regulatory approval from the Insurance and Pensions Commission and the Competition and Tariffs Commission to proceed with the transaction. FMHL chief executive officer, Douglas Hoto, indicated soon after the shareholder approval that they were already exploring integration of the two businesses and making “the necessary changes in management”.

NSSA increased its stake in NicozDiamond, which has operations in Zambia, Malawi and Mozambique, after an offer to minorities raised its shareholding from 44,8 percent to 50,9 percent. The offer to minorities had been triggered by an earlier acquisition of 10 percent of NicozDiamond shares from foreign investors, Noel Hayes and Bruce Campbell. The transaction had raised its interest beyond 35 percent, forcing it to make the offer to minorities in terms of ZSE rules. – FinGaz