Prudential 2005 Annual Report Download - page 102

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
3. ACQUISITIONS AND DISPOSITIONS (continued)
Acquisition of Hyundai Investment and Securities Co., Ltd.
On February 27, 2004, the Company acquired an 80% interest in Hyundai Investment and Securities Co., Ltd. and its
subsidiary Hyundai Investment Trust Management Co., Ltd., a Korean asset management firm, from the Korean Deposit Insurance
Corporation (“KDIC”), an agency of the Korean government, for $301 million in cash, including $210 million used to repay debt
assumed. The Company may choose to acquire, or be required to acquire, from the KDIC the remaining 20% three to six years after
closing. Subsequent to the acquisition, the Company was renamed Prudential Investment & Securities Co., Ltd (“PISC”). Pro forma
information for this acquisition is omitted as the impact is not material.
The Company’s Consolidated Statements of Operations include the operating results of PISC from the date of acquisition. In
connection with the acquisition, PISC entered into an agreement with the Korean government related to the provision of asset
management and brokerage services, which agreement extends until February 27, 2009. Fees from the Korean government under
the terms of this agreement are recorded in “Asset management fees and other income” and were $24 million and $20 million for
the years ended December 31, 2005 and 2004, respectively.
Upon the completion of the purchase accounting for the transaction, the Company recorded a $21 million extraordinary gain
for the year ended December 31, 2004, as the fair value of the assets acquired of $2.4 billion less the fair value of liabilities assumed
of $2.3 billion exceeded the purchase price. There are no income taxes associated with the extraordinary gain based on the
assumption that foreign investment and subsequent earnings are not to be repatriated to the U.S.
Acquisition of Skandia U.S. Inc.
On May 1, 2003, the Company acquired Skandia U.S. Inc. (“Skandia U.S.”), a wholly owned subsidiary of Skandia Insurance
Company Ltd. (“Skandia”). The Company purchased newly issued shares of common stock representing 90% of the outstanding
common stock of Skandia U.S. and one share of a newly issued class of preferred stock (collectively the “Shares”) and entered into
an agreement at the date of acquisition whereby the Company had the right to acquire, and Skandia had the right to require the
Company to acquire, the remaining 10% of outstanding common stock. This agreement was accounted for as a financing transaction
until the Company purchased the remaining 10% in the third quarter of 2003. The Company’s acquisition of Skandia U.S. included
American Skandia, Inc. (“American Skandia”), which is one of the largest distributors of variable annuities through independent
financial planners in the U.S. The acquisition also included a mutual fund business. On June 23, 2005, Skandia U.S. amended its
certificate of incorporation to change its name to Prudential Annuities Holding Company, Inc.
Effective May 1, 2003, 100% of the assets acquired and liabilities assumed and the results of operations have been included in
the Company’s consolidated financial statements. The total purchase price was as follows:
(in millions)
Purchase price paid for the Shares(1) ........................................................................ $ 646
Assumption of collateralized notes held by third parties ......................................................... 248
Purchase price for the remaining 10% equity of Skandia U.S. ..................................................... 165
Other payments to Skandia(2) .............................................................................. 115
Transaction costs ........................................................................................ 10
Total purchase price(3) ............................................................................... $1,184
The following table represents an allocation of the purchase price to assets acquired and liabilities assumed:
(in millions)
Total investments at market value ............................................................................ $ 486
Cash and cash equivalents .................................................................................. 238
Valuation of business acquired (“VOBA”) ..................................................................... 425
Other assets at fair value ................................................................................... 408
Separate account assets .................................................................................... 22,311
Total assets acquired .................................................................................. 23,868
Policyholders’ account balances ............................................................................. (168)
Other liabilities at fair value ................................................................................ (205)
Separate account liabilities ................................................................................. (22,311)
Total liabilities assumed ............................................................................... (22,684)
Net assets acquired(3) ............................................................................. $ 1,184
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