Failed

Well, well.  Common sense prevails (for once) and a huge and stupid acquisition is abandoned.

Prudential top brass fight for their jobs as AIA takeover abandoned

Prudential has bowed to shareholder pressure and formally abandoned its attempt to take over the Asian insurer AIA, leaving its management team with a £450m bill as they fight for their futures.

In a statement released overnight, the Pru said it is terminating its negotiations with AIA, after parent company AIG refused to accept a reduced offer of $30.375bn (£24bn) against the original terms of $35.5bn.

Pru chief executive Tidjane Thiam, who is under pressure following the deal's failure, insisted that he was right to target expansion opportunities in the far east.

"We entered into this potential transaction from a position of strength in Asia and we view the region as offering excellent growth opportunities for Prudential," he said.

Blah, blah…

Pru chairman Harvey McGrath blamed recent market turbulence for sinking the "excellent opportunity" to buy AIG's far eastern assets.

"We listened carefully to shareholders over the price and initiated a renegotiation of the terms with AIG. Unfortunately, it has not been possible to reach agreement so we feel it is in the best interest of our shareholders not to pursue this opportunity," said McGrath.

It was never an “excellent opportunity”.  If Prudential have money to invest in Asia they should be using it to grow their own business, or buying much smaller companies that they could absorb.

The Pru must now pay a break fee of £152.5m to AIA for walking away from the deal, plus £81m in fees to City institutions. The rest of the £450m was incurred in legal and advisory fees, plus the estimated cost of various derivatives contracts which were taken out to hedge the value of the pound against the dollar. These contracts were needed because the Pru planned to raise £14.5bn in a record-breaking rights issue, but pay $23bn in cash. The pound had fluctuated against the dollar in the months since the bid was launched, and some analysts believe this may actually have generated profits, reducing the total cost of the failed bid.

Leading City investors warned last night that both McGrath and Thiam face calls to step down. Robin Geffen, chief investment officer of the fund manager Neptune, said the pair were guilty of attempting to buy "a large Asian company, at a very high price, with a very unclear strategy". James Chappell of Olivetree Securities questioned whether investors still had faith in Thiam, who became chief executive last October.

How can investors have any confidence in Thiam?  Surely he has to go.

Comments

[hkorbust]

Have to disagree with you old chap.

This was the last chance to turn around a fuddy duddy has-been UK business with no future into something a great deal more exciting. And growth ain't free.

[Chris]

Don't think so. Prudential has been successful in Asia and has the potential to grow further if it pursues a sensible strategy.

Sure, it would have been exciting if Prudential had acquired AIA, but shareholders are looking for a good return on their money and expect the management to do what is best for the company, rather than pursuing risky strategies.

Robin Geffen, of Neptune Investment Management, who has been the most outspoken of the Pru's dissenting shareholders [..] claimed it as a victory for shareholder activism. "This was ultimately a triumph of common sense and the investment management community standing up to fulfil their responsibilities to their investors," he said.