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UPDATE 2-Hedge fund Third Point calls on Britain's Prudential to break up

Mon, 24th Feb 2020 17:23

(Adds Third Point letter)

By Svea Herbst-Bayliss

Feb 24 (Reuters) - Hedge fund Third Point LLC amassed a more
than $2 billion stake in Prudential Plc and called on
the British insurer on Monday to split into two companies.

Third Point's demands, first reported by Reuters earlier on
Monday, could lead to a major shake-up at Prudential, only a few
months after it spun out its European insurance and asset
management businesses into a new company called M&G Plc.

Third Point, which specializes in shareholder activism and
is run by Daniel Loeb, wrote to the 332-year old London-based
company on Monday to ask it to separate its Asian and U.S.

The New York-based hedge fund said Prudential's stock would
benefit if it stopped running its crown jewel Asia business and
its U.S. business, Jackson National Life, out of one holding
company in Britain.

Jackson accounts for a small portion of Prudential's value,
but is extremely complex to analyze, Third Point said. As a
result, investors are undervaluing Prudential's Asia business
because they are bundling it with Jackson, Third Point added.
Moreover, the current structure is putting Prudential at a
disadvantage when it comes to recruiting top talent in Asia,
according to Third Point.

In the letter, addressed to Prudential's board of directors,
Third Point also blamed the company's management for
prioritizing dividend payouts over reinvesting in the business.

Third Point is arguing that some of the benefits of a split
would include cost cuts at Prudential's British holding company,
better capital allocation policies, and better management of the
U.S. and Asia businesses, the sources said.

"If PruAsia and Jackson were separated, resulting in a
greater focus on reinvesting capital in each unit and
streamlining central costs at the group level, our analysis
indicates that the interests represented by Prudential plc
shares can double within three years," Loeb wrote in the letter.

Prudential did not respond to a request for comment.

While Prudential's headquarters are in London, it is
regulated in Hong Kong following its separation from M&G.

A source told Reuters earlier this month that Prudential was
studying options to reduce its ownership in Jackson, including
seeking "outside capital."

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

Third Point, which has $14 billion in assets under
management, has experience in pushing companies to split
themselves apart, including at Yum Brands, Dow Chemical and most
recently United Technologies.

To raise additional capital to build the stake in
Prudential, Third Point raised a so-called special purpose
vehicle, which allows hedge funds to raise money quickly and
investors to put money to work in the stock of a specific
company instead of a co-mingled fund.

Although Third Point is based in the United States, a
significant portion of its recent activist engagements have
taken place overseas, at companies including Sony Corp,
Nestle and EssilorLuxottica.
(Reporting by Svea Herbst in New York; Additional reporting by
David French in New York and Carolyn Cohn in London; Editing by
Greg Roumeliotis, Dan Grebler and Richard Chang)

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