Comment

Everyone's a winner as Prudential spins off US operation

Activist investor Daniel Loeb will call decision to float Jackson Life a win, but the Pru won't care too much about that outcome

Too often activists provoke terror in the boardroom. Chief executives are reduced to a quivering wreck at the mere thought of a pumped up Wall Street hedge fund suddenly turning up with a list of eye-popping demands.

When the moment comes, surrender is often woefully swift. Most bosses hate confrontation and activist campaigns can quickly turn to mutiny if met with resistance. Better to co-operate and avoid an embarrassing public confrontation, or so the thinking goes.

The Prudential offers an alternative response, having found itself the subject of unwanted attention from New York’s Third Point at the start of the year.

Third Point’s founder Dan Loeb will no doubt be feeling vindicated after the Pru announced that it would push ahead with a full separation of American offshoot Jackson Life.

The unit will be floated separately on the stock exchange, unless volatile markets intervene, in which case Plan B is a demerger to existing shareholders.

The move makes sense up to a point. Growth at the American arm is more pedestrian compared to Pru’s turbocharged Asian operations, making it difficult for investors to value the overall group.

It releases funds to invest in the high growth markets of Asia, a region where operating profit jumped 14pc during the first half of the year and all nine markets posted double-digit growth. There is much potential in Africa too, albeit further into the future.

Separation was Third Point’s primary demand when it turned up in February pushing for a break-up. Nevermind that the Pru was already well along that road, having carved out UK fund management arm M&G last year.

Or that the insurer had been weighing options for Jackson Life long before Loeb’s arrival. He spotted an open door and gave it a nudge, and can now claim victory.

Even more so after the corresponding 3pc bump in the Pru’s share price seemingly proved Loeb’s claim that separation would unlock hidden value.

Nevermind that its 10pc lower than when Third Point first revealed its stake in February. The pandemic can be blamed for that.

The sale of Pru’s American operations also allows Loeb to gloss over the fact that his more outlandish requests have been given short shrift.

As expected, Wells plans to stay firmly put in the UK. Shifting the headquarters from London to Hong Kong was a non-starter six months ago. With China now resorting to locking up the region’s media moguls, and a global pandemic still raging, a change in domicile would be corporate suicide.

There may not be much room for sentimentality in the world of shareholder activism but the Pru’s UK roots date back more than 170 years. That’s not easy to walk away from.

Moving the main stockmarket quote from London is equally nonsensical because UK shareholders, which make up 40pc of the Pru investor base, would become forced sellers. A similar plan at Unilever provoked uproar among the City investor base and eventually a screeching u-turn.

Third Point will see this as a win but the Pru won’t care. It has given clear ground on the softer issues without capitulating on the bigger points. It is an outcome that suits both sides.

It's a wonder Debenhams still exists

The consequences of years of mismanagement continue to haunt former high street doyen Debenhams. Another 2,500 jobs are expected to go at the fading department store chain, according to Retail Week.

No doubt the cuts will be blamed on Covid-19. High street sales are still some way off pre-pandemic levels.

Yet, as shocking as it is to see that many redundancies at one company, perhaps the bigger surprise is that Debenhams still exists at all.

The traditional department store is history. House of Fraser is no more, and Selfridges and John Lewis are having to reimagine their entire approach for the 21st century. In the US, storied names such as JC Penney and Neiman Marcus have collapsed into Chapter 11 bankruptcy protection.

Debenhams has struggled against the same brutal market forces. It has gone into administration twice in the space of a year, most recently after its lenders seized control leaving the chain in the hands of a pack of hedge funds.

But amid the drama and changes of ownership it is easy to forget that Debenhams’ problems can be traced back to a ruinous private equity buyout.

The company never recovered from a brief stint in the hands of Texas Pacific, CVC, and Merrill Lynch almost 15 years ago. The consortium sold off its freehold property estate, lumbering it with long rental leases, and loaded the chain with more than £1bn of debt.

Private equity offers a quick get-out from the constraints of the public markets, usually with handsome personal gains for those at the top. Yet, a heavy reliance on financial engineering means the benefits often come at a huge cost to the business.