Legal & General Group Plc (L&G) has officially announced the sale of its US protection business to Japan's Meiji Yasuda Life Insurance Company for $2.3 billion (£1.8 billion). This transformative move is not just about the sale; it also creates a long-term strategic partnership aimed at boosting L&G's presence in the US Pension Risk Transfer (PRT) market.
The deal, revealed by L&G’s Group CEO António Simões on February 7, 2025, will allow Meiji Yasuda to take complete ownership of L&G’s US protection business and establish a 20% stake in the PRT business. Post-transaction, L&G will retain 80% of the existing and future PRT through reinsurance arrangements with Meiji Yasuda.
According to L&G, the $2.3 billion valuation reflects compelling multiples of expected 2024 post-tax earnings.
Simões highlighted the significance of the transaction, stating, "This is a transformative transaction... to sharpen our focus on core businesses, leveraging the synergies between them, and driving sustainable growth to improve shareholder returns." He noted the partnership would capitalize on market opportunities within the US PRT sector.
The financial details surrounding the deal reveal plans for the proceeds. L&G expects to use approximately £400 million to support the PRT reinsurance arrangements and intends to return around £1 billion to shareholders through dividends and share buybacks. This distribution aligns with L&G’s strategy to return approximately 40% of its market capitalization to shareholders over the next three years.
Currently, it’s anticipated the transaction will complete by the end of 2025, subject to customary closing conditions and regulatory approvals. Meiji Yasuda’s involvement also deepens their longstanding partnership with L&G, particularly within the asset management domain.
Hideki Nagashima, the President and Group CEO of Meiji Yasuda, expressed enthusiasm about the partnership. He remarked, "We are pleased to announce this landmark transaction... strengthening our position in the US life insurance market, deepening our partnership with L&G, and enabling access to the US PRT market. Our intention to acquire 5% of L&G reflects our confidence in their leadership, strategy, and long-term prospects."
Following the announcement, shares of L&G soared, with early trading showing fluctuations upwards of 8% as investors responded positively to the news. Analysts suggest this transformative deal by Simões, who took over as CEO early last year, is part of the strategy to streamline operations amid previous challenges with L&G's share price stagnation.
This move to divest from the US protection business aligns with L&G’s broader strategy outlined during their Capital Markets Event on June 12, 2024. The event set ambitious targets, including mid-single digit growth forecasts for core operating profit and significant returns on equity.
The deal also intends to serve L&G's 2024 earnings projections well—anticipatory operating profits for the protection business are expected to be around $90 million, with the anticipated 2024 US statutory net assets for the businesses being sold amounting to approximately $850 million.
Investors are hopeful as L&G repositions itself to focus on its core businesses, which include asset management, institutional retirement, and UK retail. This shift opens avenues for improved operational efficiency and profitability as the firm seeks to meet the capital generation targets it has set.
António Simões confirmed, "This strategic partnership brings mutual benefit, allowing both companies to work together on growth initiatives and capitalizing on the large market opportunities we have identified."
Looking forward, L&G is committed to ensuring this partnership enhances value, positioning them strategically within the formidable US market, particularly as they transition through this major asset sale. Their handling of the sale, shareholder returns, and future growth ambitions will undoubtedly be closely monitored by industry analysts as the execution of this transaction progresses.
The legal and regulatory assessments expected before full completion of the sale are just the next steps for both parties, but the strong positive market reaction serves as testimony to the perceived merits of this deal.
With the horizon set on 2025 for completion, all eyes will be on Legal & General’s maneuvers as they navigate this significant transformation and build upon their already established roots within the international financial marketplace.