Human beings find the number three oddly compelling, two less so. After Prudential demerged its M&G UK business, someone was bound to demand that it split off its remaining Asian and US divisions. That someone is US activist Dan Loeb. Pru, a venerable London-listed insurer, may not resist very hard. Others surely will.
UK investors hold about 44 per cent of Pru’s shares. Many of them would bridle at a break-up that could involve listing the fast-growing Asian business in Singapore while a laggardly US division gets a quote in New York. Some UK funds would be unable to hold either equity. Others would resent higher investment by both units, which would reduce dividends.
The move will be politically unpopular. Look at it this way. In the aftermath of Brexit, a 172-year-old UK company flees abroad, closing its head office in the process. Its inspiration would be a US hedge fund manager who built an opportunistic 5 per cent exposure during the coronavirus outbreak. It may count for little that M&G got its own listing last year, creating £4bn or so of shareholder value.
Set against that the simplicity of the case made by Mr Loeb’s hedge fund Third Point. The fast-growing Asian savings business has been the jewel in Pru’s crown for years. The US division, which specialises in a particularly warty savings product called the variable annuity, is a drag on the group valuation. Like an unhappily married couple, the pair should be better off apart.
Pru trades at about 10 times forward earnings per share. AIA, the Asian insurer it once hoped to buy, is valued at almost double. At that multiple, Pru Asia’s market capitalisation would be in line with the £38bn commanded by the parent, a quick and dirty sum suggests. Even at a depressed 5 times forecast earnings, the US business Jackson National Life might have an equity valuation of some £10bn.
Easy-peasy, lemon-squeezy then? Hardly. Separating the pair would be tricky. UK pension liabilities are covered by M&G. But Jackson’s credit rating depends partly on the support of a large parent.
Pru boss Mike Wells is sitting pretty, even so. Mr Loeb will attract most of the flak. If Mr Wells successfully splits the group, he can still claim credit, having previously flagged problems with Jackson. And if he does not fancy running the Asian business he knows someone who might. Tidjane Thiam, his predecessor and the architect of Pru’s Asian growth story, has just resigned at Credit Suisse.
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