As part of the deal, the life insurer giant will also be offloading its UK annuity business to Rothesay Life for £12bn, using the proceeds to help fund the demerger.
Both transactions are expected to complete by the end of 2019.
Pru’s current group chief executive Mike Wells (pictured) and M&G Prudential’s chief executive John Foley will continue to manage their respective parts of the business.
Wells said the separation will give M&G Prudential “more control over its business strategy and capital allocation” and allow both businesses to focus on their “distinct investment prospects”.
It will also help the UK part of the business “continue its transformation into a more capital-efficient and customer-focused business, targeting growing demand for comprehensive financial solutions”.
“This will enable it to play a greater role in developing the savings and retirement markets in the UK and Europe through two of the financial sector’s most trusted brands, while Prudential plc will be able to focus on the attractive returns and growth potential of its market-leading businesses in Asia and the US,” he explained.
Following the demerger, shareholders will be left with shares in both companies.
Prudential’s share price shot up 5% to 1915p on the back of the news.
The announcement accompanied the insurer’s full year results for 2017 where it reported a 10% rise in group operating profit to £4.7bn.
Profits taken from its Asian operations, which includes Eastspring Investments, far outstripped those generated from its business in the UK and Europe. While its Asian arm returned new business profits of £2.37bn, up 17% from 2016, the UK and Europe generated just £342m of new business profits, although this was still 28% higher year-on-year.
M&G Prudential saw “record” flows of £17.3bn, taking its total funds under management to £350.7bn at the end of the period, up 13%.
For a while now, City experts had speculated that Pru was planning to break up its operations to concentrate on the more profitable parts of the business in Asia and the US.
Back in August, the life insurer merged its asset management arm with its UK savings business, forming M&G Prudential with some £332bn in assets under management. At the time, Wells said uniting the two businesses was about capitalising on the “convergence” in the investment and savings market.
Days later, it sold off its US broker network to LPL for £251.9m.
Investors have nothing to fear
Jason Hollands said Pru’s spin-out of M&G Prudential was “arguably a long overdue development” and follows the direction of travel in the sector, with players like Standard Life Aberdeen separating its insurance and asset management units.
“Captive asset managers embedded within life offices are rarely fully-reflected in the parent’s valuation and the move should give M&G increased strategic flexibility in charting its own destiny over the long run,” said Hollands.
“The move represents a welcome expansion of the UK listed asset management sector which in recent years has lost Henderson, which delisted on the London Stock Exchange following its merger with New York Stock Exchange listed Janus, and F&C following its acquisition by Canada’s BMO, a subsidiary of the Bank of Montreal.”
He added: “Investors and advisers have nothing to fear from this move as M&G has long operated in a highly autonomous way, as a pure breed asset manager, and the prospect of a separate listing opens up the potential for the business to provide share-based incentives that give its fund managers a direct financial stake in the business that they understand and operate in.”