Prudential to spin off US business but keep London HQ

Insurance giant Prudential has said it will spin off all of its 5 billion US dollar (£3.8 billion) American business and pledged to keep a scaled-back headquarters in London.

The group said it would press ahead with a stock market flotation of the Michigan-based Jackson arm with a minority initial public offering (IPO) in the first half of next year to focus solely on fast-growing Asian and African markets.

Prudential – which had been looking at other options due to the stock market turmoil caused by coronavirus – said it would aim to fully offload the US business through further sell-downs “over time”.

The move will leave the group focused purely on Asia and Africa, having already spun off and separately listed its UK and European arm M&G on the London Stock Exchange last year.

Chief executive Mike Wells said the group is “committed” to retaining its headquarters in London, where it will keep a primary stock market listing alongside Hong Kong after the Jackson IPO.

But it will be a “cost-effective” base in London as it looks to save another 70 million US dollars (£53 million) a year by 2023.

Mr Wells declined to give details on the impact on jobs at its London headquarters, where it has around 200 staff, but said it would look to have head offices that are “appropriately-sized” for the business.

Prudential added that if market conditions do not support a flotation of Jackson next year, it will look to demerge the group’s stake in the business to existing shareholders.

It will use cash raised from Jackson split into its Asian and African businesses.

Details of the Jackson plans came as Prudential reported a 3% fall in underlying operating profits to 2.54 billion US dollars (£1.94 billion) – down 2% with currency movements stripped out – for the first half of 2020.

Gross premiums earned fell 6% to 19.8 billion US dollars (£15.1 billion), but the group said it was a “resilient” performance amid tough conditions for new business due to the Covid-19 crisis.

And underlying earnings soared by 14% across Asia despite the challenges of the pandemic.

Shares in the group lifted 2% after the announcement.

Mr Wells said: “The board of Prudential plc has decided to pursue the full separation and divestment of Jackson to enable the group to focus exclusively on its high-growth Asia and Africa businesses.”

He added that the insurer is “well positioned to meet the health, protection and savings needs in these regions, where insurance penetration is low and demand for savings solutions is rapidly developing”.

Prudential has come under pressure from US activist investor Third Point to spin off the Jackson operation, as well as to ditch its London HQ.

In June, the insurer sold an 11% stake in Jackson to Athene Holdings in a deal that valued the division at 4.5 billion US dollars (£3.4 billion).

But Mr Wells said there are “lots of good reasons” to be based in London, including what he called the unique talent in the City, though he admitted the “size and shape” of the HQ will change.