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Prudential to go public
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December 18, 2000: 2:07 p.m. ET
Insurer moves to stock ownership from member; IPO expected in 4Q
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NEW YORK (CNNfn) - Prudential Insurance Co. of America set plans Monday to sell stock in the company for the first time in what could become the largest U.S. initial public offering, ending 125 years of ownership by its policyholders.
The move follows a trend in the industry that has seen major policyholder-owned firms, known as mutual insurance companies, move to stock ownership through a complicated and costly process known as demutualization in order to have stock to use in acquisitions. Newark, N.J.-based Prudential first announced plans to demutualize in 1998.
The company's board approved the plan Friday. Eligible policies that were in force that day would be entitled to receive stock, cash or policy credits in the demutualization.
CNNfn.com reported last month that Prudential's board would vote on a plan to convert to stock ownership and that an IPO was on track for next year.
A Prudential public offering is now slated for fourth quarter, company spokesman Bob DiFillippo said. Prudential will take about 9 months to get through a rigorous regulatory process, which include a policyholder vote and approval from the state of New Jersey, he said.
"We expect an IPO by the end of 2001," DiFillippo said.
Policyholders that purchased a Prudential product by midnight Friday are considered eligible for the distribution, he said.
While Goldman Sachs has advised Prudential through its demutualization process, the insurer has yet to pick a banker and will be filing its plan of reorganization in February with the New Jersey department of band insurance.
Demutalization?
Companies that demutualize convert from member to stock ownership and can choose a variety of options to achieve this end result. The most popular, a full demutualization, happens when the company unbundles policyholder's equity and ownership with policyholders receive either cash, stock or policy credits. Both MetLife Inc., the second-largest U.S. life insurer, and John Hancock Financial Services Inc., the nation's 13th-largest life insurer, chose to fully demutualize.
The second option for insurers includes forming a mutual holding company, while the last option calls for the insurer to take a unit public or merging a subsidiary into an existing public company. Prudential went the full demutualization route and 11 million policyholders will be eligible for stock, cash or some other consideration.
 Depending on how many of the 11 million eligible policyholders decide to accept stock in the new company, Prudential could become the world's most widely held stock. Analysts expect that policyholders may receive up to $2,000 each from the demutualization, in either cash, stock or some other options.
The move needs approval of at least two-thirds of policyholders who vote on the matter, and at least 1 million votes on the matter are required.
With assets of $363 billion and annual revenue of $27 billion, Prudential is the largest U.S. life insurance company.
The insurance sector produced some of the largest IPOs this year. MetLife floated a $2.8 billion issue last April and John Hancock produced a $1.7 billion deal last January.
The large deals typically produce little pop in their first day but then surge. MetLife (MET: Research, Estimates) gained 3.5 percent in its first day but has since more than doubled, while John Hancock (JHF: Research, Estimates) rose 4.4 percent in its debut but has since risen 117 percent.
Prudential had $20.1 billion in equity during first quarter 2000 and $366.6 billion in assets under management at the end of 1999. Prudential will probably float about $4 billion in its IPO and distribute the other $16 billion to shareholders in cash or some other consideration, analysts said.
A $4 billion float would rank it among the top 10 of U.S. IPOs.
"Prudential will be the third jewel of the insurance crown," said David Menlow, president of IPOfinancial.com.
Broad market volatility has caused investors to look for "warm and fuzzy" stocks that are consistent and lack the instability of the Internet and technology sectors, Menlow said.
"Insurance is doing well because everyone is tired of being beat up," he said.
John Hancock gained 56 cents to $36.94 in afternoon trading Monday while MetLife rose by 31 cents to $35.31.
Prudential banking cuts
Meanwhile, Prudential Securities, owned by Prudential Insurance, also confirmed that it would be cutting about 160 employees from its investment banking division, leaving about 130 staff members in that group. A majority of the cuts will be made in New York.
Prudential Insurance employs about 60,000 people, while Prudential Securities has about 18,000, including 7,000 financial advisers.
CNNfn.com reported earlier this month that Prudential was considering making job cuts to its investment banking division which employs about 250 investment bankers.
Prudential Securities has failed to keep up with A-list rivals such as Goldman Sachs and Merrill Lynch. This year, Goldman Sachs ranked first among IPO underwriters, serving as lead banker on 63 deals that raised $24.5 billion globally. Morgan Stanley came in second with 52 deals raising $23.9 billion while Merrill Lynch ranked third with 40 deals raising $17.2 billion, according to data from Thomson Financial Securities Data.
Prudential didn't place among the top 10, according to Thomson Financial Securities Data.
Prudential Securities is ranked 15th among debt and equities underwriters and is responsible for $16.5 billion in underwritings in the past several years, Thomson Financial said.
For the past several months, Prudential's newly named CEO John Strangfeld has been reviewing the company's operations and has even looked at closing the banking unit. On Nov. 1 Prudential shut down its institutional fixed-income business, closing its municipal finance activities and asset-backed securities business. The reorganization led to the firing or layoff of 400 traders and institutional sales representatives.
It is unclear whether Prudential is done revamping.
"No other job cuts are anticipated at this time," DiFillippo said. "Strangfeld has been reviewing the operations and we believe that review continues." 
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Prudential
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