Prudential demerger: here’s what you need to know

The Prudential demerger will take place on October 21. Here are answers to questions you may have.

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Early last year, financial services group Prudential (LSE: PRU) announced that it was planning to demerge into two separate businesses – one focusing predominantly on Asia and the US, and another focusing on UK and European markets. Subject to approval at a General Meeting today, the demerger will take place next week. With that in mind, below, you’ll find answers to questions you may have in relation to the demerger. 

When is the demerger taking place?

Assuming the proposed demerger is approved at a General Meeting today, it will occur on October 21.

What will happen to my Prudential shares?

On October 21, those who owned Prudential shares at the close of business on October 18 2019 will retain their Prudential shares while also receiving one new M&G plc share for each Prudential share held.

Online broker Hargreaves Lansdown has said that it expects the combined value of investors’ Prudential shares and M&G shares immediately after the demerger will be broadly the same as the value of their Prudential shares before the demerger.

What is the difference between Prudential and M&G?

The two companies will be quite different. The new Prudential will be focused on providing financial services products to customers in fast-growing markets across Asia and will also have exposure to the US. The growth potential of this business appears to be significant as it looks well placed to capitalise as wealth rises across Asia in the years ahead.

By contrast, M&G is a more mature UK/European life insurance and asset management firm. This business appears to have lower long-term growth prospects than the Asia-focused business.

What is the rationale for the demerger?

Prudential believes that the demerger will enable both businesses to maximise their potential performance. It has also said that it believes the demerger is in the best interests of shareholders as a whole.

Will the two businesses stay in the UK?

Yes, both businesses will be headquartered in the UK.

Will the companies remain in the FTSE 100?

Prudential has said that it expects that both businesses will meet the criteria for inclusion in the FTSE 100 index.

Is one company a better investment than the other?

Because the two companies will be quite different, it’s likely that one may appeal more than the other to investors. 

For example, if you’re a growth-focused investor, Prudential shares may be more suited to your investment style. On the other hand, if you’re a value/income investor, M&G might be more suited to your approach.

Personally, I’m more interested in the Prudential business, given its focus on Asia. I believe there is a compelling long-term growth story here. However, at this stage, we don’t have any information on metrics such as P/E ratios or dividend yields so, ultimately, it’s still too early to make an informed decision in relation to the investment potential of each company.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon owns shares in Prudential and Hargreaves Lansdown. The Motley Fool UK has recommended Hargreaves Lansdown and Prudential. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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