MOODY'S CONFIRMS PRUDENTIAL'S Aa3 SENIOR DEBT RATING FOLLOWING ANNOUNCEMENT OF BID FOR M&G
Moody's Investors Service confirmed the Aa3 senior unsecured debt rating of Prudential Corporation plc ("PruCorp") following the announcement of an agreed œ1.9bn cash bid for the M&G group ("M&G"). Moody's also confirmed PruCorp's subsidiary company ratings, including the insurance financial strength ratings of Aaa for Prudential Assurance Company Ltd, Aa1 for Scottish Amicable Life plc and Aa3 for Jackson National Life Insurance Company.
Moody's said that M&G is an excellent strategic fit with PruCorp's existing UK franchise because it brings a large retail mutual fund portfolio to complement PruCorp's existing position as a leading UK fund manager. PruCorp's existing position is based mainly on the management of its own life and pensions funds by its fund management arm, Prudential Portfolio Managers ("PPM") which, in addition to managing the group's own life and pensions portfolio, has a growing third party institutional portfolio. However, its retail portfolio has so far been limited and this weakness will be remedied with the acquisition of M&G. Furthermore, the acquisition of M&G will provide PruCorp with another major UK brand and widen its product range and distribution capability. The rating agency added that the UK government's proposals for new types of pensions (+stakeholder' pensions and LISAs) favour a retail mutual fund structure which makes M&G's franchise in this area of potentially greater value.
However, Moody's noted that PruCorp's bid for M&G is highly priced compared with other comparable asset management acquisitions. Moreover, cost savings will be limited to some œ10m annually since M&G will continue to operate largely independently of PPM. The rating agency said that goodwill paid is considerable, significantly increasing PruCorp's financial leverage on a statutory tangible book value basis. Nevertheless, in Moody's view PruCorp's financial flexibility remains strong since the funding of the acquisition is mainly from PruCorp's own cash resources with limited new debt being raised. In addition, in Moody's opinion, PruCorp's true economic capitalisation remains strong, principally reflecting the extent and quality of its achieved profit (embedded value) equity which is excluded from its statutory book value.
M&G has some œ18.5bn of funds under management with a strong retail focus and mainly direct distribution. M&G's net assets at 30.9.98 were œ324.3m and its PBT was œ76.1m for the year ended 30.9.98. The bid represents a 40% premium to the market price. The goodwill write-off is approximately œ1.6bn and will be amortised over a number of years.
The ratings which have been confirmed are:
Prudential Corporation plc - Aa3 senior debt
Prudential Finance plc - P1 backed short term debt
Prudential Finance (Jersey) Ltd - P1 backed short term debt
Prudential Finance BV - Aa3 backed senior debt
Prudential Assurance Company Ltd - Aaa insurance financial strength
Prudential Annuities Ltd - Aa1 insurance financial strength
Scottish Amicable Life plc - Aa1 insurance financial strength
Jackson National Life Insurance Company - Aa3 insurance financial strength
Jackson National Life Insurance Company - A2 subordinated debt
Jackson National Life Insurance Company - P1 commercial paper
Prudential Corporation is headquartered in London, England, and has reported pro-forma funds under management of GBP128 billion and pro-forma statutory shareholders' funds of GBP3.2 billion as at December 31, 1998.
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