Prudential Financial To Buy American Skandia
Prudential Financial Inc., Newark, N.J., has signed an agreement with Skandia Insurance Company Ltd., Stockholm, to acquire its U.S. division, American Skandia, Inc., for almost $1.3 billion, the companies announced Dec. 20.
The companies expect to close the deal during the second quarter 2003.
The deal would make Prudential a major player in the VA market and increase its visibility in mutual funds as well.
Based on current data, 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 terms of VA assets under management, Prudential notes.
Skandia Insurance says it is selling the subsidiary because it expects the U.S. VA market to show lower sales growth and profitability due to the impact of a slumping stock market.
“This has decreased the probability that American Skandia will reach Skandias 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.”
In contrast, Prudential sees ample opportunities in the purchase. “This acquisition presents us with attractive growth possibilities,” says Art Ryan, chairman and CEO of Prudential. “And it is consistent with our strategy to acquire businesses that complement and enhance our existing businesses that grow and protect our customers wealth.”
Analysts have been expecting 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.
Because American Skandia is the largest distributor of VAs through independent financial planners in the U.S., the deal will significantly grow Prudentials third-party distribution capabilities in the U.S., a company spokeswoman points out.
It has VA assets under management of $21.5 billion and mutual fund assets under management of $4.1 billion.
In addition to paying Skandia $1.15 billion, Prudential will assume a $115 million tax liability in the deal.
Ryan says he expects the acquisition will generate an attractive percentage return on equity in the mid-teens, adding 10 cents to 15 cents to company earnings per common share. This would put earnings in the range of $2.50 to $2.65 per share for 2003, based on after-tax adjusted operating income.
In addition to VAs, Prudential would also be able to sell American Skandias fixed annuity, mutual funds and life products through independent financial planners in American Skandias distribution channel.