Martin Flanagan: Pru's eastern promise has probably gone west

Published on Tuesday 1 June 2010 21:23

PRUDENTIAL'S audacious takeover bid for AIG's Asian business looked terminally wounded last night. The British insurer said it was "considering its position" after AIG said it would not consider a revision of the terms of the $35 billion (£23bn) takeover.

The Pru had tried to secure a reduction in price to $30.38bn – a 13 per cent cut – after a shareholder revolt against what was seen as a top-dollar price being paid for a transformational acquisition fraught with execution risk.

A statement confirming the Pru is now to humiliatingly walk away is expected when the stock market reopens this morning.

It will be a massive personal blow for new Pru boss Tidjane Thiam, the architect of the deal to radically change the insurer's business model to being overwhelmingly Asia-centric. His credibility, six months into the top role, has been severely hurt, possibly terminally as well.

Audaciousness is feted when it is successful; when it is embarrassingly derailed it looks more like chutzpah with a hole in the middle given licence by a nodding-dog board.

It is inconceivable that Thiam and chairman Harvey McGrath will take the original deal – and related near-14bn rights issue to help fund it – to a shareholder EGM scheduled for Monday. It would only draw out the agony.

Why did it fail? Initially, shareholders bought into the Asian strategy but queried the high price.

A rocky investor roadshow, particularly on this side of the Atlantic, didn't impress, with some saying Thiam could appear "arrogant" to those who didn't "get it".

Mis-reading the regulatory concerns that Britain's Financial Services Authority had on the Pru's capital strength further diminished credibility.

That the deal did not advance the Pru meaningfully into the two giant economies of China and India was deemed a minus. And Thailand's blood-stained streets in recent weeks showed Asia was not a no-brainer regarding political stability.

Thiam's grand plan rose in the east, but it looks like it has decidedly gone west.

BP's value spills as oil continues to flood Gulf

BP's nightmare continues as a further 12bn was slashed off the British oil giant's haemorrhaging stock market value yesterday after its latest bid to contain the oil spill in the Gulf of Mexico failed. The debacle is fast becoming an international diplomatic incident involving the understandably deeply aggrieved US government and one of Britain's biggest companies.

BP and its chief executive, Tony Hayward, are all but irrevocably tarnished by the greatest ecological oil disaster America has seen – worse than the massive Exxon Valdez spill in Alaska in 1989.

Hayward may have to fall on his sword over the spill, particularly if the rapidly rising cost to BP of putting things right threatens its dividend. Institutional investors would be unimpressed.

And, arguably, the one-third fall in the company's stock market value in the six weeks since the disaster makes BP more vulnerable to a takeover bid.

No oil giant would be tempted to make a move on BP in the midst of the current disaster, and while the overall eventual financial hit for the company remains unclear.

But such a massive fall in the company's market value, and the obvious aftermath of severely damaged credibility for existing management, could tempt a bidder out of the shadows farther down the line.

FirstGroup lightens its freight load

Sir Moir Lockhead, boss of FirstGroup, was asked at the Scottish transport giant's annual results on 12 May whether the company would consider divisional sales, specifically its freight arm.

Lockhead said: "It depends. It's something that, if someone approaches us, of course we would look at"

Well, someone approached, the company looked at it, and its GB Railfreight subsidiary has gone for 31 million.

The buyer is Eurotunnel, for which GB Railfreight is an obvious fit. The price is insignificant in the scheme of things, set against FirstGroup's debts of 2.3bn, down from 2.5bn a year ago. But every little helps, and ditching freight will allow the ScotRail-owner to focus on its core business of ferrying passengers not things.