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Prudential’s Strangfeld Weighs Takeovers as Rivals Deploy Cash

Prudential Financial's CEO John Strangfeld
CEO of Prudential Financial Inc. John Strangfeld is seeking to make an acquisition or find another use for available funds. Photographer: Steve Hockstein/Bloomberg

Prudential Financial Inc. has a greater chance of using its cash hoard for an acquisition after two of the insurer’s biggest rivals announced their own deals, Chief Executive Officer John Strangfeld said.

“The transactions that were recently announced are not transactions we aspire to,” Strangfeld said yesterday in an interview after Prudential’s annual shareholders meeting in Newark, New Jersey. “Now we have a couple less competitors that would be interested in these things because they are quite preoccupied with their own decisions.”

MetLife Inc., the biggest U.S. life insurer, and Prudential Plc of the U.K. committed a combined $51 billion to purchases in March. Strangfeld, 56, is seeking to make an acquisition or find another use for available funds. Insurers, which hoarded money during the recession, are drawing down cash balances as the economy expands.

Strangfeld’s firm returned to profit last year after the market slump pushed it into a $1.1 billion loss in 2008. Strangfeld refused U.S. aid and raised money by selling stock and debt and exiting a securities brokerage venture with Wells Fargo & Co. In his annual letter to shareholders in March, he said Prudential was shifting its focus to capital deployment from accumulation of funds.

“The opportunity is still there,” Strangfeld said in the interview. “There are still many companies and franchises that are in flux, where their permanent state is yet to be defined.”

Prudential a Buyer

Strangfeld has said Prudential is a “buyer” as rivals hobbled by the recession scale back. The company may add to its businesses outside the U.S., according to its annual report. Prudential acquired bankrupt Yamato Life Insurance Co. last year in its third purchase in more than two decades of business in Japan. It’s also seeking expansion in China and India.

“The M&A market is now more competitive than ever,” Eric Berg, a life insurance equity analyst at Barclays Plc, said in a May 6 research report. “More competitors, not just domestic but foreign companies too, are eyeing acquisitions as a way to keep growth going.” Berg has an “equal weight” rating on Prudential’s stock.

MetLife, the largest U.S. life insurer, agreed in March to buy a life unit from American International Group Inc. for $15.5 billion. AIG, working to repay a U.S. government bailout valued at $182.3 billion, has agreed to sell its main Asian unit to London-based Prudential Plc for $35.5 billion.

Strangfeld’s company, which isn’t related to the U.K. firm, has also considered a deal with AIG. Prudential Financial was in talks with AIG last year over the purchase of two units in Japan, said two people briefed on the situation.

Prudential’s Position

Prudential has “all the things that are favorable to a company going out there and looking at acquisition opportunities,” said Wayne Dalton, a senior industry analyst with SNL Financial in Charlottesville, Virginia. “They have a pretty good position as far as premiums coming in the door, they have a nice position with capital surplus.”

Prudential has $1 billion at the holding company and about $1.7 billion at a regulated underwriting subsidiary that it defines as “excess liquidity,” Chief Financial Officer Richard Carbone told analysts on a May 6 conference call. Prudential also has “additional capacity” to raise about $5 billion of debt, Carbone said.

“Our capital capacity provides us with considerable flexibility for business growth and serves as a buffer against the effects of a stressful economic environment,” Carbone said on the call.

Posting Profit

Strangfeld, who was promoted to CEO in 2008, posted Prudential’s biggest profit in its nine years as a publicly traded company in the fourth quarter on the divestment of its stake in the brokerage once called Wachovia Securities. In the first quarter, profit surged on improved investment results.

The company will consider using cash to buy back stock only when it doesn’t anticipate making acquisitions, Strangfeld said.

“Our view on share repurchases will be driven off when that opportunity set changes, not an arbitrary point in time,” Strangfeld said.

The insurer jumped five spots to No. 1 in U.S. sales of individual variable annuities last year as the 2008 market decline prompted competitors to reduce offerings of the equity-linked retirement products. Hartford Financial Services Group Inc., the insurer that paid back a $3.4 billion U.S. bailout this year, dropped six places to No. 15, while AIG fell to 10th from eighth, according to data from trade group Limra International Inc.

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