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Prudential PLC CEO says timing was right as market welcomes business split

Deciding to split Prudential PLC in two was "challenging," but the move is being made at the right time because the benefits the group can provide its U.K. unit are diminishing, group CEO Mike Wells said March 14.

The life insurance and asset management group announced alongside its full-year results that it is seeking a separate London listing for its U.K. and Europe-focused M&G Prudential unit, leaving the U.S., Asian and African business in the existing Prudential entity. It also announced the sale to Rothesay Life PLC of £12 billion of its U.K. annuities back book, representing just over one-third of the total book. The £1.1 billion of capital released by the transaction will be used to support the split.

Prudential shares closed up more than 5% in March 14 trading, closing at 1,918 pence apiece. Panmure Gordon analyst Barrie Cornes said in a research note that the planned split "was something we believe will prove to be a very positive move for shareholders" as he boosted his share price target to 2,552 pence from 2,210 pence. RBC Capital Markets analyst Gordon Aitken described the move as "a happy split" and predicted that the U.S. business would be split from the Asian business "when U.S. life valuations recover."

Wells told analysts March 14 that the decision to split was "challenging" because the group as a whole was in a good position. But he added: "That is the right time to do it. We shouldn't wait until something isn't the way we want it and let somebody else fix it. This isn't a good bank/bad bank [situation]; this is two good businesses."

Among the benefits to the U.K. business post-split will be dedicated capital and management time, Wells said. He noted, for instance, that M&G Prudential CEO John Foley and deputy CEO Anne Richards would be able to spend all their time on a U.K.- and Europe-centric board rather than the current group board, which deals with issues across Prudential's operations.

"Right now the U.K. competes internally, as it should, for opportunities we have around the globe," he said.

M&G Prudential is "large enough to compete domestically with any firm in its space," and the benefit the wider group can offer is "diminishing," he added.

"When you look at the strategy and [ask], 'Are we the logical owner?,' the conclusion of the board is: 'Maybe now, but certainly not over the next decade,'" Wells said. "This is the right time for us to do this, and we think it will unlock benefit for all of our stakeholders."

After the split, existing Prudential shareholders will own shares in both companies. Wells said this meant shareholders could keep their existing economic interest without having to do anything. He also said the group's dividend policy would remain unchanged in the interim, although he added: "We cannot comment on the dividend policy of a future entity that doesn't have its board in place."

Prudential boosted its 2017 dividend by 8% to 47 pence per share. Full-year 2017 profit attributable to equity holders of the company rose to £2.39 billion from £1.92 billion in 2016.