Prudential is to demerge its US business in the second quarter of the year and raise up to $3bn of fresh equity, in a move that will complete the break-up of the 173-year-old life insurer and cement its pivot to Asia.
The company, which has been under pressure from activist investor Third Point to split itself up, said on Thursday that it had decided to demerge Jackson, the US unit, directly to shareholders rather than go through an initial public offering of the business.
Prudential will retain a 20 per cent stake in Jackson, although that is likely to be sold down over time.
The latest separation follows the demerger of M&G, the UK unit, in 2019.
Following the US split, under which shares in Jackson will be given directly to existing shareholders, Prudential will be a UK-headquartered business with operations in Asia and Africa and stock market listings in London and Hong Kong.
Prudential shares fell 8 per cent on news of the demerger and equity raising.
Explaining the decision to demerge Jackson rather than go through an IPO, Prudential chief executive Mike Wells said investors wanted the certainty and speed a demerger would provide.
“It’s quicker. We’re out quicker. They’re independent quicker,” he said on an analyst call, adding that an IPO could have left Prudential with a stake in Jackson for a long time.
The equity raising is designed to pay down the group’s debt. While an IPO of Jackson would have delivered capital to head office, the same would not be true in a demerger.
The new equity is likely to be marketed to Asian investors after Prudential said it wanted to increase its shareholder base in the region. Although Prudential will be a largely Asian business after the demerger, just 6 per cent of its shareholders are located there.
Philip Kett, analyst at Jefferies, said he saw the demerger announcement as “a material positive”.
“While some might focus on the potential equity raise, we are more sanguine as the total addressable market opportunity in Asia is substantial,” he added.
Sales of life and health insurance in Asia are rising strongly, as the growing middle class looks to increase its financial security and healthcare choices.
Alongside the demerger announcement the company said Steven Kandarian, the former chief executive of US-based life insurer MetLife, would become chairman of Jackson.
It also revealed that Jackson’s capital would take a hit, following a change in the way its hedging arrangements were calculated. The change would push the unit’s capital ratio — a measure of capital available as a proportion of the minimum required — down 80 percentage points to a range of 340-355 per cent at the end of 2020. This would be likely to bounce back by the time of the demerger to more than 425 per cent as the company planned to raise debt and hybrid capital.