US hedge fund Third Point has taken a near $2bn stake in Prudential, calling on the insurer’s board to separate its US and Asian business and end its 172-year presence in the UK.
The $14bn activist hedge fund, run by Daniel Loeb, unveiled a series of demands, including the elimination of the company’s UK head office, in a letter to Prudential’s directors on Monday.
In his letter, Mr Loeb argued that there was no strategic logic to the company’s current structure, consisting of distinct units in the US and Asia which are operated from a London head office.
The company no longer has any operations in the UK, but is the largest insurance company listed on the London market, with a value of £37bn.
“Prudential PLC’s two separately managed franchises . . . have distinct strengths but share no discernible benefit from being operated under the same corporate umbrella,” the Third Point letter said.
Mr Loeb said shares in Prudential could double within three years if the units — Jackson National Life and PruAsia — were separated and if it retained an interest in both.
Third Point has taken a stake of just under 5 per cent in the insurer, and is now its second-largest shareholder.
It added that Prudential’s shares had underperformed those of rival AIA, which also has a big life insurance business in Asia, by 80 per cent over the past five years.
“It is a very compelling and very straightforward story,” Mr Loeb told the Financial Times. “Prudential has been operating in a suboptimal way for some time.”
The break-up demands come after Prudential separated its UK business, which includes fund manager M&G, through a demerger last year.
Bankers have long seen a separation of the remaining businesses as the next logical step, but have questioned whether Prudential would be able to get a strong valuation for Jackson if it were to be sold or floated.
However, Mr Loeb said there was no reason to wait before splitting the businesses up: “Any time you wait around and do nothing you’re wasting the opportunity to go into a growing market and take advantage of the changes that are going on.”
The company last month said that Shriti Vadera, a former banker and government minister, would take over as chair from Paul Manduca at the start of next year.
Shares in Prudential fell 4.6 per cent on Monday during a broader market sell-off.
Mr Loeb contacted Prudential’s management earlier on Monday and is awaiting a call back from the company’s chief executive, Michael Wells, one person with knowledge of the matter told the FT.
Prudential did not immediately respond to a request for comment.
Third Point has called for Prudential to eliminate the “redundant” overhead in the UK, which could save £200m per annum, and move the primary headquarters for PruAsia to Hong Kong, and for Jackson to Michigan.
Mr Loeb also wants to see a shift from the company’s “short-sighted” dividend policy to reinvestment.
Mr Loeb said: “Both companies should retain more earnings. That would enable Prudential Asia to invest more in growth and Jackson to change its investment portfolio and improve its earnings.”
Third Point’s stake in Prudential, which accounts for 15 per cent of the fund, ranks among its biggest investments, on par with Nestlé and Baxter International. The fund has not ruled out building a bigger stake in the company.