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M&G breakup: Prudential spinoff MNG facing calls for sale of annuities business

11:00, 15 August 2022

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A image of the M&G logo
Since its Prudential spin-off in October 2019, M&G’s share price has declined - Photo: Shutterstock

Savings and investment group M&G Plc (MNG) is facing a dilemma right now. Just three years after it demerged from UK insurance group Prudential (PRUl), investors are questioning whether the business should break up again.

Since its Prudential (PRUl) spin-off in October 2019, M&G’s share price has fallen from a high of 254p to its current price of 215p.

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M&G Plc (MNG) share price chart

M&G (MNG) break up

M&G (MNGis made up of two main businesses, its asset management division, and its retail arm – which is home to its annuities business.

In an interview with the FT, Andrew Crean, equity analyst at Autonomous Research said: “Shareholders on balance would prefer to see the company get [more] value from its different parts by breaking it up.”

“Investors want to see the [retail arm’s] annuity business sold. This would reduce the size of the whole company and could generate separate bids for the two remaining parts.”

The group reported its half-year results on 11 August, which saw its Assets Under Management (AUM), within its asset management division fall from £156.7bn ($189bn) to £153.8b, as negative market movements were only partially offset by net inflows of £1.1bn.

M&G’s retail and savings arms operating income also dropped from £422m to £378m, driven by a large fall in annuity margin which reflects the difference between assets and liabilities in the annuity portfolio.

The group's outgoing CEO, John Foley, who announced in April he will retire after 22 years said: "The current macro-economic environment is creating uncertainty in the markets in which we operate."

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Stepping down

Once a successor has been found, Foley will step down and it’s at this stage that investors believe the new leader should provide clarity on the direction of the business and whether the annuities division should in fact be sold.

Rumours of an M&G (MNG) break up are not new, in fact, in early 2021, fellow asset management group, Schroders Plc (SDR) spent a considerable amount of time planning a potential buyout of M&G. The deal would have created a £1trn asset management business, but it never went ahead.

There were various reasons flying around as to why the deal was abandoned. Sources close to Bloomberg said that Schroders (SDR) got cold feet after M&G’s share price bounced back from 209p to 217p. However, others claim that the culture at M&G is what put Schroders (SDR) off.

Schroders Plc (SDR) share price chart

Transfer of annuity policies

Back in November 2021, London’s High Court gave the go ahead for the transfer of £12bn in annuity policies from M&G (MNG) to insurance group, Rothesay Life.

“The transfer of legacy annuities to Rothesay Life was a big milestone. Such a move allows it to realise a good chunk of future profits associated with the business up front and leave it managing the assets without taking on the risks inherent in life insurance. That's a potentially attractive place to be, because compared to life insurance, asset management is a capital-light business,” Sophie Lund-Yates, Equity Analyst at Hargraves Lansdown wrote in a note.

Lund-Yates went on to say that insurers have obligations to their customers, and they meet those by investing the premiums they receive. But as there's always a risk the investment doesn't generate the return expected, regulators insist insurers hold a certain amount of capital in reserve. Shareholder money is essentially tied up doing not a great deal.

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