The demerger of M&G from Prudential, a FTSE 100 financial group, appears amicable. The blunt truth is that the mother ship is casting adrift a UK business no longer needed on its voyage. Pru sails on into lucrative Asian and US waters, leaving M&G in post-Brexit doldrums.
This week, M&G detailed a split that will bring it to market on October 21, just 10 days before the UK is scheduled to separate from the EU. The listing is poorly timed to generate a pop in value for Pru shareholders, who will get M&G shares on a one-for-one basis. What should they expect?
The new business combines eponymous fund manager M&G with an insurance company whose assets include a large “closed book” of old policies. Lex calculates an enterprise value of just over £9bn. Our benchmarks included earnings, book values and a dampened finger raised aloft. Alone, Pru should be worth some £40bn.
With the split less than a month away, the current shebang is valued at about £45bn at market prices. After deducting debt, shareholders might imagine the demerger will make them £4bn or so better off, equivalent to an 11 per cent uplift.
Pru shares have lagged behind the market of late. This suggests demerger day may not deliver a bounce via Pru and M&G shares.
That leaves M&G boss John Foley to build a compelling narrative around a company that will look a bit of a ragbag. The better its performance, the easier his task will be. Helping ageing Britons pay for retirement will be a central message. Clarity will begin at home, with a steep dividend yield, probably more than 7 per cent.
As Mr Foley rows manfully away, spare a thought for Captain Mike Wells, the Pru’s chief. Jettisoning the UK improves growth prospects. But a business spread across three regions possesses a narrative logic all its own. If Pru’s numbers are poor, pressure to separate Asia from the US will be inevitable.
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