Prudential to Buy Biz, Raises Funds - Analyst Blog

US insurer Prudential Financial Inc. (PRU) has commenced the offering of 18.4 million of its common shares at a price of $54.50 each. The net funds of $970 million from the issue would be used to finance part of the acquisition of American International Group Inc.'s (AIG) two Japanese life units – AIG Star Life Insurance Co. and AIG Edison Life Insurance Co.

The deal, which was finalized in September, would cost Prudential around $4.8 billion, including $600 million of the acquiring company's debt. Apart from this issue, Prudential will fund the rest of the deal with $2.2 billion in cash and $1 billion of debt.

The much sought after deal will be managed by Citigroup Inc. (C), Bank of America Corp. (BAC), UBS AG (UBS) and Barclays Plc. (BCS).

Japanis the largest business operation of Prudential outside the U.S., contributing approximately 40% to its revenues. Prudential has been operating in the country for over a couple of decades and has made three acquisitions – Orico Life Insurance and Kyoei Life Insurance Co. Ltd. in 2001 and Yamato Life Insurance Co. in 2009.

With a high rate of both life expectancy and savings, Japan is an attractive region for retirement products. The purchase of AIG's Japanese units will enhance Prudential's already strong footprint in the Japanese market, providing it a significant competitive advantage in the Asian region. Moreover, with excess capital of $2.5 billion on hand, the company is uniquely poised for organic business growth and acquisition opportunities.

Last year, during June 2009, Prudential came out with a public offering of 32.1 million shares at a price of $39.00 each to raise net proceeds of $1.2 billion. It had used the proceeds to increase its financial flexibility and strengthen its business franchise in order to arm itself for severe market declines.

Prudential's most recent quarter reported an operating income of $2.12 per share, significantly ahead of the Zacks Consensus Estimate of $1.43. Earnings also compared favorably with $1.78 in the year-ago quarter. Results for the quarter benefited from a higher reduction in policy acquisition costs and a shrinkage in minimum guaranteed benefit reserves coupled with a strong performance.

Prudential has been in the insurance and financial services business since 1848. Today they operate throughout the UK, the US and Asia, offering international health insurance and retirement planning services, supported by 27,000 employees worldwide.