Prudential ditches Asian takeover

2nd June 2010, Comments 0 comments

British insurer Prudential abandoned its hugely ambitious takeover of AIG's Asian unit AIA on Wednesday, putting the future of chief executive Tidjane Thiam in doubt.

The decision, which ends Prudential's quest to become the world's top insurance firm outside of China, came one day after troubled US group AIG refused to cut the price tag from 35.5 billion dollars (29 billion euros) to nearer 30 billion dollars.

The mammoth transaction, which would have been the biggest-ever takeover in the insurance sector, had needed re-negotiation because of turbulent financial markets, Prudential said.

The collapsed deal cost Prudential some 450 million pounds (540 million euros, 660 million dollars), including a break-fee of more than 152 million pounds.

"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," Prudential chairman Harvey McGrath said in a statement.

The aborted takeover was masterminded by Thiam whose glittering career has been badly tarnished, according to market commentators.

The group launched the bid in March, declaring it a transformational deal which would make it the world's top non-Chinese insurer by stock market value, ahead of competitors Allianz and AXA.

Prudential's share price sank 2.86 percent in late trade after the news while the main FTSE 100 index was down 0.57 percent.

BGC Partners analyst Howard Wheeldon said Prudential would survive the costly episode -- but predicted that Thiam would resign some time soon.

"I am in little doubt that Prudential will survive this and ... unless it is at the wrong end of a Far East-based (takeover) bid then it will also get away with retaining its independence," Wheeldon said.

"The weak point will be when -- rather than if -- Tidjani Thiam falls on his sword, as he inevitably will at some point over the next three or four months."

He added: "The pity is that the strategy was probably right but that what failed this deal was a combination of execution, price and bad timing."

However, Justin Urquhart-Stewart, marketing director at Seven Investment Management, was more scathing of Thiam.

"He nearly bought an expensive grenade. It did not go off -- but he has been singed with over 450 million pounds of costs," Urquhart-Stewart told AFP.

"Unless he has a credible Plan B swiftly, then he will have no credibility.

"After racking up those costs on a failed bid he is on borrowed time."

Thiam, born in the Ivory Coast but with French nationality, took a huge gamble by making the ambitious bid for AIA only six months into his job at the helm of the British group.

Thiam, who aimed to transform the 162-year-old British company into an international insurance powerhouse, said on Wednesday that the deal had required re-negotiation.

"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," Thiam said in the statement.

"We agreed with shareholders that a re-negotiation of the terms was necessary given market movements but it has not proved possible to reach agreement."

The Financial Times said on Wednesday that some investors were calling for Thiam's head after his failure to re-negotiate the deal.

"It will be an early agenda item -- who will be the new CEO," one major unnamed investor told the newspaper.

Wooing Asian investors, Prudential last week took out secondary listings in Hong Kong and Singapore ahead of an issue of shares designed to raise 21 billion dollars to help fund AIA takeover.

Thiam took up the top appointed Prudential job in October 2009, becoming the first black chief executive of a company listed on London's benchmark FTSE 100 index. He was formerly the company's financial chief.

The attempted AIA takeover attracted unflattering comparisons with the Royal Bank of Scotland which was ravaged by the credit crunch after it led a takeover of Dutch giant lender ABN Amro at the very top of the market in 2007. The group is now 83-percent owned by the British government after an enormous bailout.

"Yes, he (Thiam) has been stopped from doing an RBS in this case -- but remember that Prudential won't have masses of assets to write down as a consequence of this failure, as RBS did," noted Wheeldon.

© 2010 AFP

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