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Financial-services conglomerate Old Mutual PLC (OML.LN) on Thursday said it plans to sell its Nordic long-term savings and banking business, Skandia Insurance Co. Ltd., for GBP2.1 billion, allowing Old Mutual to further simplify its sprawling business and at the same time use sale proceeds to cut its massive debt of over GBP2.3 billion.

Old Mutual, which has a focus on South Africa, is selling the Nordic business to one of its own subsidiaries, making the transaction tax-free.

If approved by shareholders and regulators, the sale would be Old Mutual's biggest divestment, dwarfing the $350 million sale of its U.S. life insurance business last year.

The announcement also comes a year after HSBC Holdings PLC (HBC) unexpectedly pulled out of talks to buy 70% of South Africa's Nedbank Group Ltd (NED.JO), in which Old Mutual had a 51.5% stake. That 70% stake could have been worth up to $7 billion, according to reports last year.

"This transaction represents a material step in the execution of our restructuring program. We intend to use the proceeds from the sale to accelerate the reduction in group borrowings and to return surplus capital arising from the transaction to shareholders. We will also reassess our debt repayment plan," Old Mutual Chief Executive Julian Roberts said.

As part of the deal, Old Mutual will sell Skandia Insurance to Stockholm-based mutual insurer Skandia Liv.

Skandia Liv is a subsidiary of Skandia Insurance, which in turn is a subsidiary of Old Mutual.

Laws particular to Sweden give Skandia Liv a "hybrid structure," allowing it to be a subsidiary of Skandia Insurance while operating as a mutual company with an independent board. Skandia Liv also doesn't pass its profits to Old Mutual and instead accrues profits to its own policyholders.

Skandia Liv's independence allows it to buy its own parent company Skandia Insurance, an Old Mutual spokesman told Dow Jones Newswires.

"Essentially, Skandia Liv approached us because of the synergies they can get from buying Skandia Insurance. This unlocks value for our [Old Mutual] shareholders and for their policyholders. Our board saw that and they're recommending it," the spokesman said.

Skandia Liv will keep using the Skandia brand in Sweden, Denmark and Norway. Old Mutual will keep using that brand outside the three countries.

Old Mutual said it expects the transaction to be completed by the end of the first quarter.

At 1156 GMT, Old Mutual shares were up 9.5% at 121 pence while the FTSE 100 index was up 0.5%.

Goldman Sachs analyst Colin Simpson said the sale is "positive" for Old Mutual, and that the sale price is "significantly in excess of our sum of the parts component for these businesses of GBP1.4 billion."

Old Mutual "should become significantly less complex and have less debt. This should allow it to either return capital and or revise its payout ratio to 40% from the current 23% for 2011 on our estimates," Simpson said, keeping his neutral rating on the stock.

Old Mutual bought Skandia in 2006 for $6.9 billion. Adrian Saville of Cannon Asset Managers said Old Mutual paid too much for the asset back then. "The best way to turn a great company into a bad company is to pay too much. And they paid too much," he said.

At the half-year, Skandia Insurance had pro-forma net assets of GBP1.7 billion and posted a pretax operating profit of GBP60 million at the half-year.

In early 2009, Roberts told reporters: "We're in too many geographies and too many lines of businesses." Back then, Old Mutual employed 57,000 people in 38 countries around the world.

Old Mutual's website currently states it is present in 33 countries. It had 55,700 staff at the end of last year.

- By Vladimir Guevarra, Dow Jones Newswires. Tel. +44 (0) 2078429486, vladimir.guevarra@dowjones.com

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