On Friday, Prudential Financial, Inc (PRU) announced the spin-off of its global commodities business unit to Jefferies Group Inc. (JEF) for $419.5 million.
The transaction, which was announced back in April 2011, was valued at $419.5 million based on book value as of the closing date of the transaction.
Prudential’s global commodities business consisted of U.S.-based FCM, Prudential Bache Commodities, LLC; the broker dealer, Prudential Bache Securities, LLC; U.K.-based Bache Commodities Limited; and Hong Kong-based Bache Commodities (Hong Kong) Ltd. All these units have been sold off as part of the transaction.
Prudential has considered the spin-off of its commodities arm in order to focus more on its core business of insurance. Prudential has one of the best collections of businesses in the U.S. life insurance sector, with strong positions in high margin businesses and a significant diversification.
Despite a drag on revenue for the past couple of years due to a volatile economic environment, the company has consistently increased its revenues over the past several quarters. A right mix of business and strong fundamentals has helped it to garner market share from weakened competitors. Prudential is poised to improve its earnings faster than its peers in the upcoming years.
Besides, Prudential is also expanding its international operations. Its recent acquisition of Star/Edison positions it to further strengthen its already-sigificant presence in Japan.
Prudential also has substantial financial flexibility, with balance sheet capital of approximately $1.8 billion to $2.3 billion at 2010 end. Further, it expects excess capital of $1 billion in 2011. We think the company is in a position to participate in the consolidation of the global life insurance and retirement market. With so much cash available for transactions, we believe Prudential has the capacity to execute an accretive acquisition for organic growth.
JEFFERIES GP-NW (JEF): Free Stock Analysis Report
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