Great-West U.S. subsidiary buying Prudential's retirement business for $4.45 billion

A subsidiary of Great-West Lifeco Inc. has signed a $4.45-billion deal to buy Prudential Financial Inc.'s retirement business, as the company aims to deepen its presence in the U.S. market.

The deal made by Winnipeg-based Great-West's U.S. subsidiary Empower Retirement includes about $2.6 billion of capital to support the business and will reinforce its position in the American retirement market.

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Paul Mahon, Great-West's president and chief executive, said Empower was keen to acquire Newark, N.J.-based Prudential because Great-West sees the U.S. as key to dominating the retirement business.

"When we look to the U.S. retirement market, we view it as the largest retirement market in the world. We view it as a very attractive market," he said.

"It features a high degree of benefits from having scale, automation and digitization, so as we looked to the Empower business, we saw significant opportunity for growth."

After the deal is complete, the company predicts Empower's contribution to its overall earnings will grow to 30 per cent by the end of 2023.

Great-West also expects large expense and revenue synergies stemming from the deal will create long-term value for its shareholders after incurring US$170 million in one-time integration costs and US$55 million of deal costs.

The deal's announcement comes as Great-West and Empower have been seeking similar opportunities and synergies throughout the COVID-19 pandemic.

Empower announced in September that it reached an agreement to acquire the retirement services business of Massachusetts Mutual Life Insurance Company.

It said the $4.4-billion transaction would expand Empower’s reach to more than 12.2 million retirement plan participants and assets to US$834 billion.

Prudential's retirement business covers 4,300 workplace savings plans with about four million participants and US$314 billion in assets under administration.

The addition increases Empower's base to more than 16.6 million participants, 71,000 workplace savings plans and about US$1.4 trillion in assets under administration.

Mahon envisions moving Prudential and Massachusetts Mutual's customers over to Empower's platform.

These customers will also be able to access offerings being embedded in Empower programs from wealth management business Personal Capital, which it bought last June for an up front consideration of US$825 million, and deferred consideration of up to US$175 million subject to achievement of target growth objective.

The combination of companies and offerings will be lucrative, Mahon believes.

"When (customers) look at their overall budgeting and their need for assessing their financial wellness, we can be there to help them with that," he said.

"So it's really a three-part story."

That story can't fully take shape until next year because the Prudential transaction, which is subject to regulatory approvals, is expected to close in the first quarter of 2022.

The announcement pushed Great-West's share price up by 1.61 per cent or 59 cents to $37.15 in mid-morning trading.

This report by The Canadian Press was first published July 21, 2021.

Companies in this story: (TSX:GWO)

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