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Why Shares of Principal Financial Group Are Trading Higher Today

By Bram Berkowitz - Feb 22, 2021 at 3:12PM

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The insurance and wealth management company came to an agreement with one of its activist investors, and will take steps to increase shareholder value.

What happened

Shares of the investment management and insurance company Principal Financial Group (PFG -1.77%) traded as much as 9% higher this morning after Principal announced it would take steps to enhance shareholder value.

So what

Principal Financial traded higher today on news from Bloomberg that the company had come to an agreement with the activist investor Elliott Investment Management.

Activist investors tend to push companies for strategic change in order to increase profitability, or for a potential sale if that's the best way to maximize shareholder value.

Elliott has reportedly been pushing Principal to consider selling or spinning off its life insurance business in order to focus more closely on its wealth management business, which has been more profitable.

Line with arrow pointing upward on chart.

Image source: Getty Images.

As a result of the agreement, Principal will add two new independent directors to its board including Maliz Beams, who formerly served as the CEO of retirement solutions at Voya Financial. The other new director will be named later.

Principal will also conduct a review of its capital strategy including how it views organic growth versus acquisitions, and how it is returning capital to shareholders.

Now what

Activist investors are always looking for ways companies can maximize shareholder value, but the situation can be complicated if management disagrees with the views of activists.

Now that there is an agreement in place, it at least appears that executives from Principal and Elliott are on the same page, making it easier to actually accomplish shareholder value initiatives.

It also makes it more likely that Principal will consider selling its life insurance business. If that does happen, the unit could fetch a price that includes a premium, which often sends shares higher. Results from Principal's strategic review will be made public at the company's investor day.

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Stocks Mentioned

Principal Financial Group, Inc. Stock Quote
Principal Financial Group, Inc.
$66.57 (-1.77%) $-1.20
Voya Financial, Inc. Stock Quote
Voya Financial, Inc.
$59.36 (-2.22%) $-1.35

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