Prudential resists break-up calls, defends strategy

LONDON: Prudential chairman David Clementi, resisting calls for a break-up of Britain’s second-largest insurer, told shareholders he will stick to plans for increasing UK earnings by cutting jobs and selling more profitable products.

“The current composition and structure of the group provide material financial and operational benefits to shareholders,” Clementi said in a statement coinciding with Thursday’s annual investor meeting in London. Even so, the board will “take account of all alternatives to maximise value for shareholders.”

The 159-year-old company, one of Britain’s largest life insurers for more than a century, is under fire because sales growth in its home market has fallen behind rivals including Legal & General Group and Aviva. Shareholders owning about 10% of the company have expressed support for a break-up to unlock the value of Prudential’s Asian and US units.

Prudential shares rose 1% to 781 pence at 11.55 am in London. They are up 11% this year, valuing the insurer at 19 billion pounds ($37.6 billion) as investors anticipated a shakeup.

“I think they are running pretty short of alternatives,” said New Star Asset Management Group fund manager Ed Collins in an interview today. Collins helps manage about $41 billion, including Prudential shares, for the London-based fund company. The insurer’s value would rise as much as 40% if the company split up the company and sold the pieces, said Trevor Moss, an analyst at Man Securities in London.

Prudential’s UK earnings fell 7.9% in 2006, while profit in Asia jumped 20%. Asia sales and new business profits moved ahead strongly, and we have continued to build the distribution footprint with over 285,000 agents across the region, Prudential chief executive officer Mark Tucker said in a statement.

Prudential’s sales of individual annuities are boosting profit margins in Britain, Tucker said at the meeting. “We see this sector as the mainstay of UK profitability in the years ahead,” he said. “Overall margins and returns on new business remained toward the top end of what you will see in the UK market.”

Prudential, which has 26,000 employees and more than 20 million customers stretching from Michigan to Hong Kong, rebuffed a $33.4 billion takeover bid last year from London-based Aviva. New Star, Jupiter Asset Management, Canada Life and Principal Asset Management are among investors saying they would support a break-up of Prudential.

Hermes Pensions Management, which holds 1.6%, or 39.6 million shares, has sent a letter asking the insurer to consider a break-up. The note was reported in The Sunday Times and confirmed by Hermes.

“All the major investors are keen to see a break-up of the group and are actively pushing for this,” said Tim Young, an analyst at Collins Stewart in London. Splitting the company would value Prudential’s assets at 950 pence a share, 22% more than the current price, according to the median estimate of five analysts surveyed.

Prudential completed an eight-month review of “available options” in March and decided to revamp its UK business, Clementi said in the statement. The insurer may shed as many as 3,000 workers in the UK and sell more annuities rather than less- profitable pensions, income-protection products and health insurance, he said in March.

“At this stage, the management team’s focus continues to be on profitable growth in all areas of the business and, in particular, the UK team is absolutely focused on the execution and delivery of the strategy we have outlined,” Clementi said in Thursday’s statement.