By Carolyn Cohn and Sumeet Chatterjee
LONDON/HONG KONG (Reuters) - Prudential <PRU.L> plans to float a minority stake in its U.S. business, Britain's largest insurer said on Wednesday, as it faces demands from rebel investor Third Point for a full break-up.
The U.S. hedge fund last month said it had bought around 5% of the company and called on Prudential to hive off its U.S. business Jackson and cut its London head office, proposals with which investors have sympathy.
Prudential's main businesses are in Asia and the United States after it spun off its British unit last year.
Prudential was planning a minority initial public offering (IPO) of Jackson, CEO Mike Wells - who formerly served as the boss of Jackson - said as the company reported a 20% rise in 2019 operating profit.
"In order to diversify at pace, Jackson will need access to additional investment," he said on a media call, adding that he had first signalled the need for outside capital for Jackson in August and that the company had "undertaken significant work with our advisers to prep the U.S. business".
Goldman Sachs and Citi are advisers to Prudential, according to its website, while Rothschild is also advising the firm, a source familiar with the matter told Reuters.
A Third Point spokesman declined to comment on the IPO plan.
Panmure analyst Barrie Cornes said the plan was "positive as it will enable a realistic valuation of the US business", reiterating his buy rating on the stock.
Analysts say Jackson is hard to value because of its complex annuity products. JPMorgan last month estimated its value at $6-10 billion.
Jackson saw a 28% drop in 2019 new business profit, which Prudential said reflected lower interest rates and changes in its product mix.
Wells defended the firm's London headquarters, telling reporters on the conference call it was the logical place to be, given the depth of talent in financial services in the city.
Third Point has also criticised Prudential for prioritising dividend growth over reinvestment, but Wells said the company's dividend policy was "appropriate".
Prudential reported an overall above-forecast 20% rise in 2019 adjusted operating profit to $5.3 billion, compared with a $5.1 billion (3.9 billion pounds) forecast in a company-supplied analyst poll.
Adjusted operating profit from Asian insurance operations was $3 billion, up by 14%, with Hong Kong up by 24%.
But fewer visitors from mainland China caused a fall in total Hong Kong annual premium equivalent sales - a key revenue measure - by 11% and a fall in new business profit of 12%.
Anti-government demonstrations in the Chinese-ruled territory, which began in June, resulted in a sharp drop in tourist arrivals, mainly those from the mainland, hitting sales of insurance policies.
Prudential also said it was monitoring the coronavirus outbreak, which has cut economic activity in the region.
Wells said there had been few coronavirus-related claims in Asia so far and the firm's exposure to the outbreak had been "minimal".
Prudential said it would pay a second interim ordinary dividend of 25.97 cents per share.
Its shares were steady at 10.98 pounds per share at 1024 GMT, compared with a 0.4% rise in the FTSE 100 <.FTSE>.
(Editing by Sinead Cruise and Jason Neely)