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For activist investors, the quick route to big profits is often plotted through demands to break up a company. The idea is simple: The parts would be worth more alone than together.
HSBC Holdings Plc is facing such a call right now from its biggest shareholder, Chinese insurer Ping An Insurance Group of China Ltd. The pitch is that its Asian businesses would attract a higher valuation from investors if split from the boring old UK and European bits.
But another recent UK-Asia breakup story shows it’s not so easy. In 2019, Prudential Plc was a London-based global life insurance group with a high-growth, supposedly underappreciated Hong Kong-based Asia business, a US variable annuity arm and a 171-year-old British base.
Prudential — no relation to Prudential Financial Inc of the US — first spun off the UK arm in October 2019, which was renamed for its asset-management brand, M&G Plc. Two years later, after pressure from Dan Loeb’s Third Point LLC, it listed the US business, Jackson Financial Inc.
The combined stock market value of the two London-listed and one US-listed businesses today is almost 11% less than Prudential was the day before the M&G split, in dollar terms — and that includes $3 billion of equity Prudential raised late last year. Plus, Prudential was already down heavily since early 2018 when the first split took place in 2019.
But what’s probably worse for investors is that shares of today’s Prudential — which is focused on Asian and African markets where life insurance is a growth industry — are valued in line with the shares of the mature, slower growth M&G. Both stocks trade at less than 11 times forecast earnings per share for the 12 months ahead, according to Bloomberg data.
Prudential was meant to rapidly climb towards the valuation of its close Asian rival AIA Group, but the Hong Kong-listed company remains a long way ahead, at more than 15 times forecast earnings.
Jackson, meanwhile, is now a relatively small company highly concentrated in a complex annuity product that investors see as risky and whose fortunes are tightly linked to equity markets. It trades at less than two times forecast earnings.
Prudential’s split might still add value in the longer term: Analysts at Citigroup Inc and Bank of America Corp, among others, still expect the insurer’s valuation to approach AIA’s eventually. Several things have gone wrong and there are lessons here for activists in general and Ping An’s drive to break up HSBC in particular.
—Bloomberg