Prudential will split itself in two on Monday, but the run-up to the long-awaited move has been overshadowed by a fine from regulators, the blocking of a £12bn deal and allegations of sexual harassment by a fund manager.
Plans for the split, which will separate the insurance company’s UK business from operations in Asia and the US to give investors more choice about which parts of the group they want to own, have been under way since March last year and have cost £355m.
Investors will be given one share in M&G plc — the demerged UK business — for every Prudential share they own. Analysts think that M&G will have a valuation of between £6bn and £8.5bn when trading starts on Monday morning, which would be enough to put it into the FTSE 100.
However, the past three months have been marred by a number of problems for the group. In August, the UK High Court blocked a proposed £12bn annuity transfer to specialist insurer Rothesay, while in September Prudential was fined £24m by regulators for failing to treat customers fairly.
Last week Bloomberg reported allegations that an unnamed senior fund manager at M&G — Prudential’s asset management business — had been sexually harassing female colleagues for several years. The behaviour allegedly included sexually explicit text messages, inappropriate comments and unwanted physical contact.
John Foley, chief executive of M&G, said: “What’s been alleged in terms of culture will not prevail here. We will root it out. We are investigating it and we will get to the bottom of it.”
As the split is not an initial public offering, there is no initial price range. Analyst estimates for the M&G market capitalisation range from Citi and Credit Suisse at £6bn to Jefferies at £8.5bn. At the lower end of the range, the share price would be 230p; at the upper end it would be 326p.
However, the price is expected to be volatile immediately after the split as investors decide if they want to own shares in both companies. On Monday, shares in Prudential PLC — housing the US and Asian businesses — are expected to fall, as it will no longer own the UK operation.
“You will have some forced sellers from M&G,” said Abid Hussain, analyst at Credit Suisse. “People in Singapore, for example, might not be able to hold M&G shares for longer than 30 days.” However, he added that these “natural sellers” could be replaced by income funds who might not own the shares already.
Mr Foley has been touring investors to tell them about his plans for the company, which include the M&G fund management business and Prudential’s UK life insurance operation.
“This part of the business has not been well understood by investors in the past. We’ve had a series of education sessions with them about what they already own,” he said. “They are asking about two things — growth and cash generation.”
M&G hopes to deliver both, with growth coming from expansion in Asia and Europe and cash generation coming from the back book of old insurance policies.
“After the demerger, we will have a lot more discretion over our balance sheet and around where we grow,” said Mr Foley.
However analysts say that growth will not be the main attraction for investors.
“I think it will trade as a UK dividend stock,” said Andrew Baker, analyst at Citi. “Investors will care about capital generation and dividend cover. They will gravitate more to that than to growth.”
The company will also face questions about its strategy. “You’ll have a headquarters in a location where you have no operations,” said Mr Hussain. “Over the long term, will it be an Asia and US business or a pure Asia growth franchise? Should the opportunity arise to list or sell the US business, I think management would seriously consider the option down the line.”
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