Prudential, the UK insurer under pressure from activist hedge fund Third Point, is to sell a $500m stake in its US business Jackson, in a deal that values the unit at $4.5bn ahead of a potential initial public offering.
The company has been facing calls by Dan Loeb’s Third Point to sell or spin off Jackson so it can fully focus on its fast-growing Asian operation. Prudential has been looking into an IPO or outright sale of the US business since March.
Prudential said on Thursday it would sell an 11 per cent stake in Jackson to Athene, the life insurer backed by private equity group Apollo, while still preparing the ground for the flotation of a minority stake in the unit.
Prudential chief executive Mike Wells said the deal was “a key step forward in meeting our strategic objectives for Jackson”.
The UK-headquartered insurer has also signed a reinsurance deal with Athene, which will take on $27bn of assets and liabilities from Jackson covering a block of US annuities. Athene will aim to generate better returns from the assets by investing them more aggressively than Jackson has done.
Jim Belardi, chief executive of Athene, said: “This compelling transaction enables us to grow our gross invested assets by approximately 20 per cent with predictable liabilities we know well.”
Prudential shares rose 7 per cent on Thursday on news of the stake sale.
Prudential demerged its UK business, M&G, last year. In February it came under pressure from Third Point, which took a $2bn stake in Prudential and demanded that it split the two remaining parts of its business, which are in the US and Asia. The activist also wants the company to shut its London head office.
Jackson, which sells annuities in the US, accounts for half of the group’s profit but has never been popular with shareholders in London, who complain that the business is opaque and heavily exposed to movements in equity markets.
Earlier this year, analysts at Citigroup put a £6.5bn valuation on Jackson, but since then shares in similar US-based companies have fallen sharply because of the coronavirus crisis. Equitable and Brighthouse have lost almost a fifth of their value this year. Lincoln National is down 30 per cent.
Michael Falcon, chief executive of Jackson, said that the two deals with Athene “further strengthen our capital position and enhance our ability to grow”.