Prudential to spin off US unit
British life assurer Prudential says it plans to spin off its US business Jackson to focus on Africa and its largest market Asia, responding to investor pressure for a split.
British life assurer Prudential says it plans to spin off its US business Jackson to focus on Africa and its largest market Asia, responding to investor pressure for a split.
Prudential’s share price hit eight-week highs as investors cheered news that the company would follow in the footsteps of peers Standard Life and Old Mutual, which divided up their operations in recent years.
“This new Prudential model will be a growth-oriented business,” Prudential CEO Mike Wells, a former boss of Jackson, said on a media call. “Jackson is ready to be a standalone.”
US hedge fund Third Point took a 5% stake in Prudential in February, and called on management to split the company in two.
A minority initial public offering of Jackson is planned for the first half of 2021, with “full divestment over time”, Prudential, which spun off its European unit M&G last year, said. It had already sold an equity stake in the US unit to Apollo Globalbacked Athene Holding for $500m in June.
Athene now owns 11% of Jackson, and it has reinsured $28bn of its annuity portfolio.
Wells said that the investor was a “potential partner” for Jackson for further reinsurance transactions. Prudential, which began life in London in 1848, will maintain its head office in the city, of which Third Point had been critical, but said it would cut costs. Wells did not say if there would be job losses.
Prudential’s share price rose more than 4% before easing to £12.71 per share, up 3.2%.
Operating profit fell 3% in the first half to $2.5bn, hit by the impact of the coronavirus pandemic, but was above a company-compiled consensus forecast of $2.4bn. Operating profit in Asia was up 14%, but down 19% at Jackson.
Analysts at Jefferies said that the Jackson disposal would reduce the risk premium applied to Prudential, reiterating their hold rating. Prudential said that under a new dividend policy aligned to growth in the Asia and Africa businesses it would make an interim payment of 5.37c a share, which was a third of its expected full-year 2020 dividend of 16.1c.
Shore Capital said that the expected full-year dividend represented a 55% cut from 2019 on a pro forma basis.