Prudential plc ("Prudential")
Last month, Prudential (LSE:PRU, Financial) announced plans to separate its US-based annuity business, Jackson National, via a demerger in Q2 2021 instead of through a partial IPO and sell-down later this year. Prudential also announced it will no longer be distributing all of the anticipated proceeds from the Jackson National IPO and debt-raise to the Group due to accounting changes regarding regulatory capital levels at Jackson, and is instead considering raising $2.5-3 billion of new equity capital to support the high-growth opportunities in standalone Asia. Such an equity raise will be modestly dilutive to existing shareholders.
While the market reacted with disappointment to the news, we believe this is a net positive and important step forward in realizing an independent, high-growth and high-return Asia business for two reasons: 1) The proposed demerger significantly accelerates the Jackson National separation versus the original intention of minority IPO and future sell-downs; and 2) an equity capital raise out of Hong Kong and a potential listing on the Southbound Stock Connect exchange will be an important catalyst to build liquidity among Asian shareholders.
We believe that Prudential's unique Asian franchise is substantially undervalued (especially relative to its closest comparable, AIA) and this decision, while challenging on an immediate basis, pulls forward the realization of independence and local ownership participation that is essential to achieve full value for long-term shareholders. We have also been pleased to see Prudential make substantial progress in improving its governance, especially around board talent and diversity. Shriti Vadera, who formally assumed her role as Chairwoman last month, brings a wealth of expertise in Asia strategy, capital allocation, technical innovation, and ESG. She recently recruited two new Asia-based board members who bring important skills to help guide the new Pru Asia. Chairwoman Vadera and CEO Mike Wells' commitment to long-term value creation gives us great confidence in the future of this business.
From Daniel Loeb (Trades, Portfolio)'s Third Point fourth-quarter 2020 letter.
