Prudential plc has unveiled its plan to demerge from its UK & Europe business, M&G Prudential.
The demerger will result in two separately-listed companies with different investment characteristics and opportunities. On completion, shareholders will hold interests in both Prudential plc and M&G Prudential.
M&G Prudential is one of the leading retirement and savings businesses in the UK and Europe, offering compelling product propositions through its range of investment solutions provided by M&G and PruFund.
As a standalone entity, M&G Prudential will be led by its current chief executive John Foley and will continue its transformation into a more capital-efficient and customer-focused business, targeting growing demand for comprehensive financial solutions. M&G Prudential remains on track to deliver its previously announced cost savings target.
In line with this strategy to transition towards a more capital efficient, de-risked business model, M&G Prudential also announced the sale of £12.0bn of its shareholder annuity portfolio to Rothesay Life. Under the terms of the agreement, M&G Prudential has reinsured £12.0bn of liabilities to Rothesay Life, which is expected to be followed by a Part VII transfer of the portfolio by the end of next year. The capital benefit of this transaction will be retained within the Group to support the demerger process.
Spearheaded by its current group chief executive Mike Wells, Prudential plc will combine the growth potential of its Asia, US and Africa businesses.
The Asia pan-regional life and asset management business is well-positioned to meet the savings and protection needs of a growing and increasingly wealthy population, through top three positions in nine out of twelve life markets, and through Eastspring’s established presence in ten Asian countries. Jackson is one of the largest providers of retirement solutions in the US, delivering income security to increasing numbers of baby boomer retirees.
In Africa, since 2014 Prudential has established operations in five countries, with a substantial opportunity to serve the rapidly expanding customer demand for long term financial solutions. These businesses represent a leading international insurance and asset management group focused on the markets that offer the most attractive growth opportunities globally. They will be better able to develop their existing market leadership positions, with the strategic benefits of collective scale, shared capabilities and complementary products and customers.
Prudential plc’s dividend policy will remain unchanged through the separation period. Following the demerger, Prudential plc will remain headquartered in the UK and retain its premium listing on the London Stock Exchange, its primary listing in Hong Kong, and other listings in Singapore and New York. M&G Prudential will be headquartered in the UK and hold a premium listing on the London Stock Exchange.
Chairman of Prudential plc, Paul Manduca said: “The decision to demerge M&G Prudential follows a rigorous review by the Board which considered all options, including the status quo, and concluded that it is in the best interest of the Group to operate as two separately-listed companies, able to focus on their distinct strategic priorities in their chosen geographies. Both are expected to meet the criteria for inclusion in the FTSE 100 index”.
Mike Wells, group chief executive remarked: “Our businesses share common heritage, values and purpose. Looking forward, we believe we will be better able to focus on meeting our customers’ rapidly evolving needs and to deliver long-term value to investors as two separate businesses.
“Following separation, M&G Prudential will have more control over its business strategy and capital allocation. This will enable it to play a greater role in developing the savings and retirement markets in the UK and Europe through two of the financial sector’s most trusted brands, while Prudential plc will be able to focus on the attractive returns and growth potential of its market-leading businesses in Asia and the US.”
John Foley, chief executive of M&G Prudential added: “The demerger will allow M&G Prudential to play a broader leadership role in the fast-changing savings and investments market within the UK and Europe. M&G Prudential’s proven investment capabilities and balance sheet management provide an excellent platform from which to serve the demand for comprehensive financial solutions.”
In preparation for the UK demerger process, and to align the ownership of the Group’s businesses with their operating structures, Prudential plc intends to transfer the legal ownership of its Hong Kong insurance subsidiaries from The Prudential Assurance Company Limited (M&G Prudential’s UK regulated insurance entity) to Prudential Corporation Asia Limited, which is expected to complete by the end of 2019.
The Group will look to realise efficiencies to benefit the two businesses post demerger. In addition, prior to the demerger, the Group’s debt capital position will be re-balanced across Prudential plc and M&G Prudential. This may include the redemption or debt liability management of issued debt, and new debt issuance.
Discussions have started with regulators to ensure the Group will remain subject to effective on-going supervision in line with international standards set by the International Association of Insurance Supervisors (IAIS). Discussions have also begun with our other key stakeholders, including rating agencies. The demerger is subject to shareholder and regulatory approval.
The timing of the demerger will be subject to a number of factors, including the completion of the UK annuity sale, prevailing market conditions, the transfer of the Hong Kong business and seeking to minimise costs associated with the demerger.
An update on the demerger, related steps and timing will be provided in due course.