25 February 2020Insurance

Third Point proposes Prudential splits its US and Asian businesses

New York-based investment firm Third Point has called for Prudential to separate its US and Asian businesses and end its presence in the UK.

Third Point holds approximately 5 percent of the outstanding common shares of Prudential, making it its second largest shareholder. Yesterday, (February 24) Daniel Loeb, founder and CEO of Third Point, wrote to its board of directors setting out his proposals.

“While we applaud Prudential for taking the initial step of separating its European operations into M&G, we believe that a more significant opportunity exists: separate the company’s Asian and United States operations to increase investment in both businesses, optimise growth, and drive higher valuation,” he wrote. “We hope to collaborate with you to effectuate these important changes.”

Loeb argued that Prudential’s two separately managed franchises, Prudential Corporation Asia and Jackson National Life, have distinct strengths but share no discernible benefit from being operated under the same corporate umbrella.

He said that PruAsia is materially undervalued by investors simply because it is coupled with Jackson and that Prudential’s stated strategy of “prioritising” Asia is inconsistent with the makeup of the current executive management team, which “has limited experience in Asia”, and the group structure, which “carries a redundant cost base some 6,000 miles away from PruAsia’s local headquarters in Hong Kong. This structure has also made it difficult to attract and retain local top-quality managerial talent,” wrote Loeb.

As a path forward, he proposed separating Jackson from PruAsia and creating two standalone focused companies. Once the companies have been separated, Loeb believes they should pivot from dividend growth to long-term value creation as the central priority.

He also proposes that they eliminate duplicative group head office costs, which Third Point estimates to be nearly £200 million ($259 million) per annum.

“Eliminate the redundant UK footprint (which should have been completely absorbed by the recently spun-off M&G) and move the primary headquarters for PruAsia to Hong Kong, and for Jackson to Michigan,” Loeb recommended.

He also proposed the companies recruit best-in-class management teams and boards. “Equip PruAsia with local leadership at the management and board levels,” he wrote. “Introduce an incentive scheme at Jackson that rewards long-term value creation as an independent entity. Ensure each board has intellectual diversity, local market knowledge, and relevant industry expertise.”

Today (February 25) Prudential confirmed receipt of the letter, saying: “Prudential proactively engages with shareholders with regards to group strategy and structure, and looks forward to commencing a dialogue with Third Point with regard to the views outlined in its letter. Prudential will provide an update on the Group's performance and strategy at its full-year results on 11 March 2020.”

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