NU Online News Service, Dec. 20, 2:35 p.m. – Prudential Financial Inc., Newark, N.J., has signed an agreement with Skandia Insurance Company Ltd., Stockholm, to acquire Skandia’s U.S. division, American Skandia Inc. for almost $1.3 billion, the companies announced today.
Completing the acquisition would propel Prudential from 22nd to sixth place in sales in the U.S. variable annuity market, and from 14th to fourth in assets, Prudential notes.
“This acquisition presents us with attractive growth possibilities,” says Art Ryan, Prudential’s chairman. “And it is consistent with our strategy to acquire businesses that complement and enhance our existing businesses that grow and protect our customers’ wealth.”
A number of analysts had expected American Skandia to sell its U.S. unit, and rumors to that effect had appeared in the New York Times and Wall Street Journal in September.
Skandia Insurance says in its announcement that it expects U.S. VA sales to produce lower growth and profitability due to a slumping stock market and the effect of the slump on American Skandia’s ratings.
“This has decreased the probability that American Skandia will reach Skandia’s return targets,” the company says. “This transaction will therefore enable American Skandia to improve its future development with a U.S. financial institution that has diversified U.S. product lines and complementary distribution channels.”
Because American Skandia is the largest distributor of variable annuities through independent U.S. financial planners, the deal will significantly expand Prudential’s third-party U.S. distribution capabilities, Prudential spokeswoman Mary Flowers says.
American Skandia manages $21.5 billion in VA assets and $4.1billion in mutual fund assets.
In addition to paying Skandia $1.15 billion, Prudential will assume $115 million in liabilities.
Ryan says he expects the acquisition to generate a return-on-equity percentage in the mid-teens, adding 10 cents to 15 cents to company earnings per common share in 2003 and increasing total earnings to $2.50 to $2.65 per share.
VA sales may be in the doldrums today, but “we maintain the future is very attractive in the variable annuity industry,” Flowers says. “We’re committed to it in the long term.”
For now, Prudential plans to distribute the acquired business under the Prudential-American Skandia brand name.
In addition to variable annuities, Prudential would be able to sell its fixed annuities, mutual funds and life products through the independent financial planners in American Skandia’s distribution network.
The acquisition will also give Prudential an increased presence in banks, although American Skandia VA sales in that channel have been declining.
The company had been among the top five VA vendors in banks until 2001 but it dropped to 15th place in the first half of 2002, according to Kenneth Kehrer Associates, Princeton, N.J.