Prudential’s madcap scheme to buy AIA is still not going well. Earlier in the week, the CEO of AIA was reported as telling friends that the deal was “unworkable”, and now they are trying to reduce the price. And the SCMP finally seems sufficiently interested in the story to have assigned one of its own writers rather than recycling agency reports:
British insurer in talks with AIG for discount to win over investors opposed to buyout
Prudential is scrambling to secure a last-minute discount on the US$35.5 billion price it is paying for Asian rival AIA Group, in a bid to save the controversial buyout that a significant minority of its shareholders oppose.
The British life insurer said it was talking to AIA's US parent, American International Group, about changing the terms of the transaction. It would now offer US$30 billion for AIA, analysts at Bernstein Research said, although Prudential did not confirm this.
While it is highly unusual for shareholders in blue-chip British companies to vote against acquisitions, Robin Geffen, a London-based fund manager who has set up an action group to oppose the takeover, said 20 per cent of Prudential's investors supported him.
Even at US$30 billion, some investors say the ambitious takeover remains too risky, because the British firm will still be paying vastly more than its £13.7 billion (HK$155.62 billion) market value for AIA.
"Discussions regarding the current status of the transaction have taken place between Prudential and AIG and are continuing," Prudential, which is primarily listed in London but also joined the Hong Kong stock exchange on Tuesday, said. "These discussions may or may not lead to a change in the terms of the combination of AIA and Prudential".
"Paying US$5 billion less is a side issue," said a British fund manager, who owns Prudential stock but cannot talk publicly about individual companies. "And shareholders who are against the deal have other fundamental concerns."
The investor said Prudential could fail to integrate its already large Asian insurance sales force with AIA's because the two companies had operated as bitter rivals in this region for decades.
Well, indeed. That won’t be easy to solve, as Mark Wilson understands.
He added that he was "very uncomfortable" with Prudential chief executive Tidjane Thiam's plan to rapidly transform the insurer into an Asian business.
"This is a stable British company paying good dividends. After this deal, over 80 per cent of its business would be in Asia. And I don't run an Asia fund," he said.
Today, the Observer takes a negative view (Prudential's bid for AIA wilts under heat of criticism), whilst the Sunday Times seems more positive (Pru wins backing for 10% off AIA) – but why should AIG agree to cut the price when there’s already a deal in place with penalty clauses if Prudential fail to complete on time?