UK investors have poured cold water on an aspiration by hedge fund Third Point to double Prudential’s valuation by breaking up the UK’s biggest listed insurer.
The US fund, run by Daniel Loeb, on Monday said it had taken a 5 per cent stake in Prudential, worth about $2bn, and argued that the company should shut its UK head office and separate the Asian business from the US operation, Jackson. Doing that, it said, could double the value of the company over three years.
One top-20 shareholder said: “As a matter of principle we are not fans of companies delisting from the UK to chase the dream of rebased valuations on foreign exchanges”.
Another institutional investor added: “Simply separating the Asian business isn’t likely to be sufficient to drive a re-rating, unless the hope is it could attract bidders — an outcome that isn’t necessarily a top priority for long-term investors.”
Analysts at Citi estimated that by shutting the head office and splitting Prudential Asia from Jackson, the company’s valuation could rise by nearly 50 per cent — but said “100 per cent upside on a three-year view looks rich”.
Prudential has given itself two weeks to formulate a response to Third Point, saying there would be a strategic update with its full-year results on March 11.
The company demerged its UK business, M&G, last October, leaving it with operations in the US and Asia, and a head office in London.
Since then it has hinted at more changes. Executives have said the fast-growing Asian business is now the focus.
They have also said they plan to bring outside capital into Jackson in some way, although have not specified how. Bankers said the company could sell a stake in the business to an outside investor or bring in fresh money in other ways — such as selling assets.
Third Point is pushing for a much faster, and fuller, split.
It is not alone. Speaking to the Financial Times in December, Rob James, a fund manager at Merian Global Investors, said: “Prudential Asia should be a standalone company . . . It would be to the benefit of shareholders to have Jackson out of the group, almost at any price.”
However, bankers have warned that splitting off Jackson would not be straightforward. The company is focused on one type of product, variable annuities, and investors fear it could suffer badly in a US economic downturn. Similar companies are given low valuations on the US stock market.
When Axa floated its US life insurance business, then called Axa Equitable, in 2018, it had to price the shares below the expected price range, for example.
Jackson’s credit rating would likely be moved down by one notch if it were split from the rest of Prudential, according to Antonello Aquino, an associate managing director at Moody’s.
But a split from Jackson could lead to more corporate activity for Prudential Asia. “Jackson is a poison pill that stops Prudential being a takeover target,” said one banker.
Unlike many other global insurers, Prudential has invested heavily in the region over the past 20 years and its business there is the envy of many of its rivals.
Analysts said that, shorn of Jackson, Prudential Asia could attract interest from a wide rage of bidders including Chubb, Allianz, AIA, Ping An and even HSBC. Mark Tucker, HSBC’s chairman, spent almost a decade running Prudential Asia earlier in his career.
Third Point has not proposed delisting the shares from the UK, but any suggestion along those lines could cause problems. More than 40 per cent of Prudential’s shareholders are UK-based institutions, and many of them would be unable to hold the shares if they were listed elsewhere.
“If you’re a UK investor, getting access to any sort of growth is a challenge,” said Citi analyst James Shuck. “Prudential does give them that access.”