Is black economic empowerment finally growing up? Last week's R7.2bn ($1.15bn) deal by Old Mutual will place 12.75 per cent of the life assurer's South African business under direct black ownership. Its structure suggests BEE may at last be leaving its troubled adolescence behind.

Since 1994, some R150bn worth of BEE transactions have been concluded, but their progress has been chequered. The early deals mostly enriched a few black individuals, while often failing to convince from a business perspective.

But following several high profile casualties particularly New Africa Investments in 1999 BEE has become more focused on delivering value. Now Old Mutual seems to have produced a deal which works well both for new and current shareholders.

A popular wheeze was to give new shareholders call options on 10 per cent of the shares, which meant that if the share price fell below the strike price they ended up never actually owning the equity. Instead, Old Mutual uses third party funding so that the new investors can buy shares at a 10p par value. Dividends will be used to repay first the third party, then to pay Old Mutual the difference between the 10p par value and an estimated 125p share price, plus 8.2 per cent interest on the outstanding balance.

Old Mutual's cost of equity is closer to 14 per cent, so the deal is not commercially priced, but it is nevertheless not a give-away. And existing shareholders, although facing a 2.2 per cent dilution of embedded value per share, are likely to benefit from a genuine uplift to new business from new black insurance customers.

Although the jury is out on BEE's contribution to South Africa's very modest economic growth over the last decade, the Old Mutual deal looks sustainable as well as adding value. Pressure from the state both direct and indirect to comply with BEE requirements remains a clear business imperative. But the more obvious contributions to shareholder value that the process can make are becoming clearer. BEE may not be mature yet, but the spots do seem to be clearing up.

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