In December 2021, Sanlam gave us the first hint that a deal of some sort might be on the table with Allianz SE, a global financial services group listed on the Frankfurt Stock Exchange. Both companies operate in Africa, so the options clearly ranged from a strategic alliance at one end of the spectrum to a full-blown merger at the other.

We now know that the groups have decided to execute a long-term strategic joint venture related to African operations excluding South Africa. The companies will contribute their operations into a new company, so this is a bit like a merger after all. The joint venture has a minimum period of 10 years, which is why I say “a bit like” as it can presumably be unwound at a later date.

Sanlam operates in 30 countries and Allianz operates in 11 countries. Although the term “pan-African” tends to be overused in the market, this clearly meets the definition. Allianz may have the smaller footprint of the two, but the African business has existed since 1912 and has around 2,600 employees servicing 2 million customers.

This ultimately a scale play and a clever one at that. It brings together two financial services giants and broadens and deepens their reach simultaneously. Sanlam also highlights the strength of its digitally enabled distribution network, which now benefits from a wider product offering.

Sanlam is the larger business and so it will have the controlling stake in the joint venture (60%), with Allianz holding the remaining 40% with the ability to increase this to 49% over time. This means that Sanlam is effectively taking control of Allianz’s African footprint.

We now need to flick across to Santam before we finish talking about Sanlam.

Santam deal

Sanlam subsidiary (and separately listed insurance group) Santam will dispose of its 10% interest in SAN JV to Allianz as part of this transaction. This is a life and general insurance business operating in 25 countries. The parties have executed a framework cooperation agreement to govern the working relationship going forward, so Santam no longer needs to retain its equity stake in this joint venture. If Santam wanted to stick around, it would need to be willing to invest capital as and when required for further investments, which isn’t in line with Santam’s strategy.

Separately, Santam will look to sell its 10% stake in the general insurance business of Sanlam Emerging Markets in Africa that is held outside of SAN JV. It will retain its stake in Santam Namibia. Just to add further complications, Sanlam is transferring its economic participation rights in Santam Namibia to the JV.

Santam will receive EUR120.5 million (around R2 billion) for the stake, subject to various potential adjustments. Attributable earnings were just R8 million in FY21.

Santam shareholder approval is not required.

Back to Sanlam

We needed to deal with the Santam deal before carrying on, as Allianz will contribute the 10% shareholding in SAN JV (assuming all goes ahead) to the new joint venture.

Interestingly, Sanlam’s Namibian subsidiaries are excluded from the deal at this stage. They may be contributed to the joint venture at a later stage.

The total Group Equity Value of the new joint venture will be over EUR2 billion (around R33 billion). Net income for the six months to June 2021 would have been EUR25 million for these assets.

This looks like an exciting opportunity for Sanlam. It seems that the market had already priced it in, with limited share price action in response to the announcement. Santam traded slightly higher after the announcement.