JUST what is so special about First Mutual Ltd that it can dominate the news three consecutive years for its recurring shareholder squabbles?
The fight for the control of FML has claimed the scalps of two experienced chief executives in a space of two-and-a-half years.
Former boss Norman Sachikonye was pushed out in June 2004 following serious concerns raised by the Zimbabwe Stock Exchange and the Commissioner of Insurance over the controversial Capital Alliance deal.
Capital Alliance is an investment that Sachikonye and his fellow senior managers had used to acquire 20% of FML at demutualisation.
The battle to control FML however goes back as far as 1999 when Phillip Chiyangwa tried but failed despite attempts to use his “empowerment” trump card.
Then in 2003 the management tried by taking 20% through Capital Alliance before losing it to Patterson Timba’s Renaissance Financial Holdings.
The outgoing chief executive, Douglas Hoto, will leave at the end of this month amid revelations that he was pushed off board by a shareholder — Renaissance Financial Holdings.
Renaissance believed Hoto was an obstacle to their bid to take full control of the insurance company.
The jury is still out on the fate of the current Renaissance attempt but it seems to have been strengthened by Hoto’s exit this week. Perhaps the main reason why investors are attracted to FML is because of its cash resources.
FML controls a significant portion of the country’s pension funds. This means that it controls a good part of cheap money in the country. The bulk of the cheap funds come from monthly premiums paid by policy holders investing in their retirement.
It has a very large cashflow. FML thus becomes a ready source of cheap funds for any investor. With access to cheap funds also come the fees that the company makes for managing the portfolio of pension funds.
FML also has a strong property portfolio. By rough estimates the company owns at least a building in almost every street in the CBD of Harare. It also has commercial stakes and shopping malls in Harare, Bulawayo and other towns.
In a country where inflation is above 1 000%, property becomes a safe way of conserving value. The other reason for the hype is that being the second largest insurance company in Zimbabwe after Old Mutual, FML has got some influence in the economy of the country.
Its local and spread ownership makes it an easy target for punters seeking speculative gains. It is an easy target because the local investors know that Old Mutual is not locally-owned.
FML thus becomes an alternative for investors looking for a cheap source of funds.
It’s susceptibility is worsened by the fact that unlike other insurance companies — save for Old Mutual — FML was borne out of demutualisation which means that it belonged to no one in particular but policy holders and thousands of different shareholders.
This means it is owned by people and organisations whose influence is not centralised in a holdings company for them to take defensive mechanisms if the need arises to protect their interests from hostile takeovers.
But what does Renaissance — a relatively small bank — want in such an insurance giant? Money!
For Renaissance however the stakes are much higher than that. It’s a long-term project for the people behind the bid.
Once in control they are able to direct FML funds through their bank — Renaissance Merchant Bank.
“It’s a huge enough portfolio to sustain a bank,” said a senior official from a local financial institution.
For Renaissance the takeover opens a new horizon for expansion from the banking sector that is constantly battered by arbitrary central bank decisions on rates and statutory reserves. The banking sector is also shrinking as companies continue closing down due to the economic crisis.
People are no longer saving but the scare of being a pauper upon retirement certainly pushes them toward policies and FML becomes a beneficiary.
Besides, most policy shareholders are bound to their policies and will pay to avoid the dire consequences of defaulting or being in arrears.
Given all these attractive factors, it is highly unlikely that Renaissance will give up on FML any time soon. One of the individuals driving the deal recently told businessdigest that the market is in for further surprises.
“We are pushing for more. It’s a hostile takeover and hostile takeovers are never friendly because of their very nature — hostile.”
Hoto was certainly a victim of that hostility.