After gaining approval last month from the New Jersey Department of Banking and Insurance, Prudential Financial plans to go forward with a $3.9 billion IPO late this year, assuming stable market conditions.
It will trade on the NYSE under the symbol PRU.
“We're proceeding ahead with our commitment to become a public company,” says Bob DeFellippo, spokesperson for Prudential Financial in Newark, N.J. “We're looking at the market to determine if the timing is appropriate.”
The public offering will include 89 million shares at an estimated share price of 30. In addition, 456 million shares will be distributed to the firm's policyholders and subsidiaries in exchange for existing mutual stakes.
The firm also plans a private placement of two million shares of Class B stock and $575 million in convertible bonds.
Insurance claims stemming from the terrorist attacks will not affect the IPO, DeFellippo says. The firm estimates it will pay out $75 million to $125 million in claims, after taxes.
Since most of the stock will be distributed to policyholders and not sold to investors, the market environment doesn't matter as much as it would for a traditional IPO, several reps say.
Public hearings on the plan were held July 17 and 18. Policyholders completed voting on the deal July 31, with 92% voting in favor of it.
Pru Reps Want Stock
Most Prudential Securities brokers are optimistic about going public.
“I think it's a good deal,” says a Midwest Prudential producer. “It's one of the reasons I came here. How else do you offer an opportunity to employees to accumulate wealth?”
On the other hand, reps suspect the firm may use stock options in lieu of enhanced pay. “It's cheaper to give options,” says a Prudential broker on the East Coast.
Compensation changes for brokers “haven't been decided yet,” DeFellippo says. “It's early for that.”
Brokers speculate that the firm's MasterShare deferred compensation program will be turned into a stock purchase plan, or the stock will be offered as an investment choice. The current deferred pay plan allows brokers to purchase a Prudential S&P 500 index fund at a discount.
Going public also opens up the possibility of making acquisitions or being acquired. And with stock, says a West Coast rep, the company could recruit the top management talent it needs to reform a “very bureaucratic” company.
“I hope going public makes people feel accountable throughout the entire organization,” the broker adds.
The latest prospectus shows that Prudential's retail brokerage business is hurting. For the first half of 2001, the unit posted a $104 million deficit, compared with a $250 million profit in the same period last year. Commission revenue dropped to $715 million, compared with $1 billion a year ago.
The firm also blames broker-recruiting costs for the poor performance. Its prospectus says a loss of veteran reps in the past two years has hurt results.
Prudential Securities brokers have long complained about the firm's cost-cutting measures.
In its prospectus filed with the SEC, Prudential Financial says expense reductions will continue. In 2002, the firm intends to reduce expenses among all its financial services businesses by almost $400 million, compared with 2000 levels.
This year the retail unit experienced reductions in staffing levels, occupancy expenses and other overhead costs, according to the filing. But the firm did not give a number for current or future cuts slated for the brokerage operation.
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