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Prudential becomes latest target of investor activism

The insurance giant is currently under pressure from its second-largest shareholder, hedge fund Third Point, to break up its US and Asian businesses

Prudential PLC - Prudential becomes latest target of investor activism

Prudential PLC (LON:PRU) confirmed today it is in the crosshairs of activist fund Third Point, which wants to split its US and Asian operations and end its 172-year UK presence.

Third Point is the insurance giant’s second-largest shareholder and headed by US investor Daniel Loeb.

READ: Prudential prepared to discuss break-up proposal from US hedge fund

Its letter to the Pru on Monday claimed that separating the two businesses will “increase investment in both businesses, optimise growth, and drive higher valuation”.

It added that there is no strategic rationale for the two arms of the business to be run from Prudential’s head office in London after the group spun out its European operations in October to form M&G PLC (LON:MNG).

Should Pru be worried?

Loeb has a long pedigree of investor activism through Third Point, which he originally set up with US$3.3mln in 1995.

In 2012, the hedge fund amassed a 5.8% stake in internet giant Yahoo! and managed to have Loeb appointed to the board after becoming one of the organisation’s most vociferous critics.

This was followed by the resignation of Yahoo! CEO Scott Thompson, who Loeb revealed did not possess a computer science degree as had been widely assumed at the time.

Loeb then became instrumental in the appointment Thompson’s successor, former Google exec Marissa Mayer, in July 2013 before resigning from the board and selling back around 40mln shares back to Yahoo!, netting Third Point a profit of US$1.6bn.

The fund has also proposed breakups of conglomerates before, having previously pressured Sony to split its entertainment and electronics businesses from each other, a move that was publicly opposed by actor George Clooney, whose Smokehouse Pictures had a contract with Sony at the time.

In 2013, Third Point turned its guns on auction house Sotheby’s, amassing a stake of just over 9% as Loeb became embroiled in a proxy war with its then CEO Bill Ruprecht, criticising what he said was the executive’s “generous” pay package. Ruprecht was replaced by the company in 2014 after Loeb gained three seats on the board.

Continued pressure

Third Point’s activism has not let up in the intervening years, with a report from data firm Activist Insight showing that the fund was the world's third most activist investor in 2019, publicly subjecting three companies, Sony, United Technologies Corp (NYSE:UTX) and Centene Corp (NYSE:CNC) to its campaigns while also holding activist positions accounting for nearly half of its net market exposure.

All three of those attempts were rebuffed by the companies’ respective shareholders, which Activist Insight theorised could be due to the hefty average market cap of the targeted companies, which stood at US$81.4bn, much higher than firms targeted by its peers.

This means that Prudential’s market cap of around £36.9bn (US$48bn) is unlikely to deter Third Point’s efforts.

UK companies could be facing more broadsides

The start of 2020 has been a rough one for London-listed companies, with FTSE 100 private hospital operator NMC Health PLC (LON:NMC) facing all but certain ejection from the index after a short attack from activist hedge fund Muddy Waters sent its shares plunging.

Another company to face activist wrath in recent months is publishing house Future PLC (LON:FUTR), which in early February was targeted by hedge fund Shadowfall which accuses the firm of making poor quality acquisitions to mask weak organic growth.

However, it seems that the activists could just be warming up, with Muddy Waters founder Carson Block saying in an interview with The Mail on Sunday that the UK was ripe for short selling and that his fund already had a number of targets lined up.

Prudential's shares were 1.6% higher at 1,443.5p at lunchtime.

Quick facts: Prudential PLC

Price: 1031.5 GBX

LSE:PRU
Market: LSE
Market Cap: £26.83 billion
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