The merger of M&G Investments with its parent Prudential UK will deliver an estimated £145m cost synergies over five years and fuels talk of a sale, which has been described as “punchy stuff” for shareholders.
The combination of the UK businesses was announced in the half yearly results this morning and will result in a business managing £332bn of assets as it seeks to create a vertically integrated savings and investments business.
Tilney Group managing director Jason Hollands says there is logic to Prudential’s claim that the merger will create “better outcomes for our millions of customers” by bringing Prudential’s capabilities in areas like Liability Driven Investing and volatility management alongside M&G’s active investment approach.
“But a key tangible benefit appears to be for the Pru’s shareholders with estimated major recurring annualised cost synergies achieved of £145 million by 2022.
“That’s pretty punchy stuff, the details of which are not clear at the moment but might imply big savings in centralised functions and distribution.”
Interactive Investor head of equities Lee Wild says today’s news adds fuel to the fire that Prudential is preparing for a sale of its UK business.
“It’s something the company has been mulling over in private, and cutting loose the underperforming domestic operations, where Pru no longer writes new annuity business, could stick a rocket under the share price.”
Meanwhile, partner and co-head of financial services at Cavendish Corporate Finance Peter Gray says the merger is part of a wider trend and will satisfy the increasing demand from customers for comprehensive financial solutions.
“The deal reflects the continued trend of consolidation in the industry as firms seek to lower costs in the face of margin pressure precipitated by the increasing popularity of tracker funds.”
Hollands adds: “With the near complete merger of Standard Life and asset management giant Aberdeen and the earlier deal combining Janus and Henderson, this is the latest evidence of that the tectonic plates are shifting in UK financial service and that the market is developing towards the creation of a small cluster of super-groups that have both broad manufacturing capabilities across asset classes and significant distribution.”