US hedge fund calls for Prudential breakup as it takes near-$2bn stake

The US hedge fund and activist investor Third Point has taken a near-$2bn (£1.5bn) stake in the London-based insurer Prudential and is calling for it to separate into two companies.

Third Point, led by the US billionaire Daniel Loeb, has written a letter to Prudential’s board of directors, explaining that it has become the insurer’s second biggest shareholder, with a stake of almost 5%.

The New York-based asset management firm argues Prudential should split its Asian and US businesses – only months after the group spun off its fund management and European arm. Those UK and European operations began trading as M&G on the London Stock Exchange in October.

Third Point, which specialises in shareholder activism, praises the 172-year-old insurance group for demerging M&G but calls on it to divide Prudential Corporation Asia and Jackson National Life “to increase investment in both businesses, optimise growth and drive higher valuation”.

The two separately managed franchises PruAsia and Jackson “have distinct strengths but share no discernable benefit from being operated under the same corporate umbrella”, Loeb said.

Third Point, which has $14bn of assets under management, said that PruAsia and Jackson could have been spun off at the same time as M&G.

The investment firm lists several reasons why it believes Prudential would benefit from separating the businesses, such as eliminating group head office costs and recruiting local executives, and asserts this would “close the yawning gap between the current share price and intrinsic value”.

Third Point said it hopes to “collaborate” with Prudential over its proposals and that it is “confident that the majority of Prudential’s shareholders will share our view”.

Prudential could not immediately be reached for comment.

Third Point is well known for taking stakes in large international companies and publicly calling for strategic changes.

In recent years, activist investors have tried to alter direction at a range of companies, notably Barclays. The bank won its battle against US-based Edward Bramson, when its shareholders voted down his proposal at the last AGM to win a seat on the lender’s board. Bramson, with his investment vehicle Sherborne, has criticised Barclays’ underperforming investment bank and has said its strategy has failed to benefit shareholders.

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