Prudential’s review of its UK life assurance operation could trigger a full break-up of the group, some investors and analysts believe.
Prudential – which rebuffed a £17bn ($33.2bn) takeover proposal from bigger rival Aviva in March – said in the autumn that it was reviewing the future of its UK life assurance business, with the aim of updating shareholders in March.
The group also said on Sunday that it had rejected an approach – believed to have been from Citigroup – for Egg, the online bank of which it took full control earlier this year.
Prudential described the approach for Egg as “speculative and conditional and not in our shareholders’ interests to pursue further”.
However, Mark Tucker, Prudential’s chief executive, has refused to rule out a sale of the UK life business.
He has said he is examining “all options” for the unit, which had an embedded value – an estimate of the profit expected to arise from in-force life assurance policies – of £5.4bn at June 30, and generated about 25 per cent of the group’s operating profit last year.
Roman Cizdyn, analyst at Oriel Securities, said that if the conclusion of the review was that the UK life business were to be put up for sale, then Prudential’s other two legs, its fast growing Asian operations, and its US life business, could become “very digestible”.
“If anything happens to any of those three legs, the rest is up for grabs,” he said. Prudential also owns M&G, the asset manager, which could be equally attractive to potential buyers.
Mr Cizdyn estimates a break-up value of 915p per share for Prudential, with possibly another 55p from freeing up the group’s £9bn “orphan estate” – the pot of money that has built up in the life fund over decades. This compares with a
closing price for Prudential shares of 686p on Friday.
One shareholder said the idea of a break-up of Prudential was “an issue that people would take seriously”.
But another said he liked the fact that Prudential gave UK investors exposure to the US and Asian markets.
James Pearce, analyst at JPMorgan Cazenove, said last week that he believed Mr Tucker was “poised to take decisive strategic action to resolve operational problems in the UK”.
However, one person familiar with the situation indicated that a sale of the entire UK life business was highly unlikely.
Prudential declined to comment. But in private, officials have consistently maintained that it has an independent future, though admit that as a listed company it would have to consider any serious and significant offers.
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