Prudential plc announced its intention to demerge its UK & Europe business M&G Prudential from Prudential plc, resulting in two separately-listed companies “with different investment characteristics and opportunities.”
M&G Prudential also announced the sale of £12 billion of its shareholder annuity portfolio to Rothesay Life.
On completion of the demerger, current shareholders will hold interests in both Prudential plc and M&G Prudential.
Both companies are expected to meet the criteria for inclusion in the FTSE 100 index.
Prudential plc share rose about 5% to around £19.20 to give it a current stock market value of around £47 billion.
M&G Prudential is a retirement and savings businesses in the UK and Europe.
As a standalone entity, M&G Prudential will be led by its current CEO John Foley.
Prudential plc will now “combine the exciting growth potential of its Asia, US and Africa businesses and will be led by its current group chief executive Mike Wells,” said Prudential.
“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, Prudential has established operations in five countries since 2014, 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.”
Wells told reporters Brexit did not play a role in the demerger decision and he declined to comment on the potential to spin off the firm’s US unit.
“We expect that at some point in the future there will be further decoupling,” wrote RBC Europe analyst Gordon Aitken in a note to clients.
“In our view, the Asian business will be split from the US business when US life valuations recover, and the asset manager M&G will be split from the UK insurance business.”
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.
Prudential chairman 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.”
Wells said: “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.”
Foley said: “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.”
Berenberg analyst Trevor Moss told Bloomberg News: “The new M&G Prudential has much stronger prospects and the separation has the capability to unlock quite a large amount of value for shareholders.
“The UK business valuation has suffered as a consequence of being a small part of the sum of the parts and being a low-growth business in recent years.”