Third Point: Prudential should move Asian headquarters to Hong Kong

27 Feb, 2020 04:32
source: SCMP

Singularity Financial Hong Kong February 27, 2020

(SCMP) Prudential should break itself up into two publicly listed companies focused on Asia and the US to boost shareholder value, urged activist investor Third Point.

The London-headquartered insurer should then move the primary base for its Asian arm to Hong Kong, and that of its US business, Jackson National Life, to Michigan, said Third Point. It should also stop prioritising dividends over investment in Asia.

While Prudential’s headquarters are in London, it is regulated in Hong Kong following its separation from M&G. Prudential has already taken steps to shake up its business. The British insurer spun off European investment manager M&G last year and is already prioritising Asia.

Hedge fund Third Point LLC has amassed more than a $2 billion stake in Prudential Plc and plans to push Britain’s biggest insurer to split into two companies, people familiar with the matter said on Monday.

This deep restructuring would unleash the potential of its fastest-growing business, Prudential Corporation Asia (PruAsia), said Third Point, which manages US$14 billion. Third Point will argue that some of the benefits of a split would include cost cuts at Prudential’s British holding company and better management of the U.S. and Asia businesses, the sources said.

Third Point’s stake is equivalent to just under 5% of Prudential, making the fund the company’s second-largest shareholder, according to the sources. Prudential has a market capitalization of 36.8 billion pounds ($47.5 billion).

“You have a jewel in the crown that is being overlooked because the company is being managed out of the UK,” said Dan Loeb, who runs Third Point, in a telephone interview with the South China Morning Post.

“In three years’ time, by separating the businesses, and getting the uplift in multiple and the uplift in growth, for the PruAsia subsidiary, we get to about double where it is trading right now in aggregate,” said Loeb, explaining his reasoning.

Such a restructuring would eliminate the cost of running a group head office, which Third Point estimates to be nearly £200 million (US$259 million) per annum and could be done without incurring material tax or other costs.

“It’s a significant saving,” said Loeb.

“Management’s ‘progressive dividend’ policy has been short-sighted, stunted growth, and led it to forego new business investment, especially in Asia,” said Third Point in the letter to the board.

Prudential confirmed that it received a letter from Third Point on February 24 and that it looked forward to starting a dialogue with Third Point. Prudential also said it will provide an update on performance and strategy when it publishes its full-year results on March 11.

Third Point said they are not going far enough. Prudential’s plans are inconsistent with the make-up of the executive management team, which has limited experience in Asia. Also, answering to a headquarters 6,000 miles away from PruAsia’s local base in Hong Kong has made it difficult to attract and retain local top-quality managerial talent.

“This isn’t just about the bottom line, it’s a structural fix that would bring management closer to operations and allow them to attract best-in-class Asian operators to run an Asian company out of Asia,” said Loeb.

Third Point thinks the epidemic is no reason to hold back on investing heavily in Asia. It noted that there is a need for health and protection products in Asia, a region with 3.6 billion consumers and little existing coverage.

“Prudential Plc must refocus on localizing its strategy, capital, and leadership, which starts with the separation of PruAsia and Jackson,” said the letter to Prudential’s board.

(Partially quoted from SCMP article titled Prudential should move Asian headquarters to Hong Kong, urges second-largest shareholder Third Point, by Alison Tudor-Ackroyd titled)