Despite recent published rumors that American Skandia was off the block, the company announced it will be sold to Prudential Insurance of Newark, N.J., for total considerations of $1.265 billion, which includes $115 million in liability. Talk of a sale has swirled around the Shelton-based company for years, heightening in the past six months as its financial stability ratings eroded.
According to investment banking sources, price and the preservation of management structure both presented sticking points to previous negotiations. CEO Wade Dokken was said to be trying to sell the business to a company that would allow American Skandia to continue to operate independently. Some have felt that Dokkens desire to stay with the company had further slowed negotiations.
Publicly, Prudential has not announced its intentions for the management at American Skandia. "Its part of the transition issues," said Mary Flowers, spokeswoman for Prudential, adding that the company has put a transition team in place and does not expect the deal to close until the second quarter of 2003.
The price tag of $1.265 billion may come as a surprise to some industry observers; a deal being negotiated with Jefferson Pilot Financial of Greensboro, N.C. [see Annuity Market News, .Oct. 2002] was said to be in the ballpark of $600 million in total considerations. However, Robert Hafner, associate director at Standard & Poors in New York, commented that the current deal is still below book value.
Analyst response to the transaction has been mixed; Moodys Investor Services has changed its outlook on Prudential to negative because the additional leverage of the purchase adds risk to the already-lagging performance of Prudential Securities and Prudential Property and Casualty. Fitch Ratings of New York has affirmed Prudentials rating, despite risks from acquisitions, which it said the insurance industry generally "has not done a good job executing in recent years," and the increased leverage from the purchase.
Overall, analysts agree that, while potentially hazardous, the combination of the two businesses makes business sense and can be extremely positive for both parties.