- Group signs deal to sell US business
- Japanese buyer is long-term partner
- Aim is to return 40% of market cap
The normally-sleepy world of retirement savings got a jolt on Friday morning as Legal & General (LGEN) announced a deal to sell its US arm and return more than half the proceeds to shareholders through a combinations of buybacks and dividends.
The shares jumped more than 27p or 11% to a new 12-month high 266p at the market open before easing back to sit 17p or 7% higher at 256 in mid-morning trading.
‘COMPELLING’ VALUATION
The FTSE 100 firm revealed it had struck a deal to sell its US insurance operations, comprising its protection and pension risk transfer businesses, to long-term partner Meiji Yasuda for a valuation of $2.3 billion or just over £1.8 billion.
Under the deal, Meiji Yasuda will buy a 20% stake in L&G’s US pension risk transfer arm in order to help grow the business, while a separate deal will see the privately-owned Japanese insurer take a 5% direct stake in L&G and build on the two firms’ existing relationship in asset management.
L&G said the price of $2.3 billion represented ‘a compelling multiple’ of estimated 2024 net earnings, and it would use the proceeds to launch an additional £1 billion share buyback.
Furthermore, the group intends to return a total of around 40% of its current market cap to investors over 2025 to 2027 through a mixture of buybacks and dividends.
EXPERT VIEWS
Philip Kett at Jefferies concurred the valuation was ‘compelling’ and represented a high multiple of earnings for the business sold.
Kett also noted the initial £1 billion buyback represented over 25% of the equity and around 7% of the group’s market cap.
Russ Mould, investment director at AJ Bell, commented: ‘Anyone who had Legal & General pegged as boring is having to change their minds as chief executive António Simões gets stuck into transforming the business.
‘Fresh from announcing a new structure last June as he looks to streamline the insurer’s operations, Simões has now unveiled an eye-catching deal with Meiji Yasuda.’
The deal essentially ‘de-risks’ L&G’s pension risk transfer business, which is a key growth area for the group but consumes large amounts of capital, said Mould, while the share buyback should help salve any investor concerns.
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Ian Conway) and the editor (James Crux) own shares in AJ Bell.
