By Sinead Cruise and Svea Herbst-Bayliss
LONDON/BOSTON (Reuters) - Prudential (L:PRU) sold a minority stake in its U.S. business, Jackson, to Apollo Global-backed Athene Holding (N:ATH) for $500 million (£400 million), the insurer said on Thursday, in the first phase of its plan to create an independent U.S. business.
The London-listed, Asia-focused insurer has been looking for ways to bring external capital into the U.S. annuity provider and said it would continue to evaluate options for the part of the business it still owned, including a minority initial public offering.
The end goal was to create an independent U.S. business, Prudential said, without giving details on how much of Jackson it still wanted to keep.
"This agreement is a key step forward in meeting our strategic objectives for Jackson," Chief Executive Mike Wells said in a statement.
Athene's investment, which hands the retirement services company an 11.1% economic interest in Jackson's enlarged common equity, was expected to close in July, Prudential said.
The sale comes less than four months after U.S. hedge fund Third Point took a more than $2 billion stake and called on Prudential to split into two companies.
Over the last months, Third Point, which is run by Daniel Loeb, has held discussions with Wells about how to proceed.
Loeb applauded the sale on Thursday, calling it a great first step, a person familiar with his thinking said.
"Third Point had suggested a blueprint for Prudential earlier in the year and Wells seems to be in sync with the hedge fund's ideas", the person said.
Some analysts say there is little logic in Prudential holding onto Jackson, which has few synergies with its Asian arm - where profits and new business sales have historically been higher.
Prudential shares were trading 2.8% up at 1353 GMT.
"The deal is particularly welcome since there were concerns the current market conditions would make a disposal difficult," said Nicholas Hyett, Equity Analyst at Hargreaves Lansdown (LON:HRGV).
"The inherently unpredictable nature of Jackson's large variable annuity portfolio isn’t exactly the reliable income model investors generally expect from a life insurer."
In addition, Prudential said Athene - which counts Leon Black's Apollo Global Management as its biggest shareholder- would fully reinsure $27.6 billion of Jackson's in-force fixed and fixed indexed annuity portfolio from June 1.
The combined effects of investment and reinsurance transactions are expected to raise Jackson's risk-based capital cover ratio by 80 percentage points, Prudential said.