The man from the Pru heads east

Published on Monday 1 March 2010 20:02

INSURANCE giant Prudential set out plans yesterday to become Asia's biggest insurer and one of the leading financial institutions in the world as it announced a $35.5 billion (£23.5 billion) deal to acquire the Asian business of ailing US insurance group American International Group.

• Pru chief executive Tidjane Thiam. Picture: Getty

The Pru is planning a record investor cash-call of up to 14 billion to finance the takeover, which analysts have labelled "huge".

The rights issue would be bigger than any UK investors have seen before, including those undertaken by the Royal Bank of Scotland and HBOS during the bank crisis.

The Pru yesterday revealed it had agreed terms with AIG to buy its Asian subsidiary, AIA Group.

Oriel securities analyst Marcus Barnard said the rights issue was "on a par with its current market cap (15.3bn] and in sterling terms a larger size to the rights issues from RBS, HSBC or Lloyds."

Pru chief executive Tidjane Thiam, who hailed the "one-off opportunity to transform the business", said: "Asia has been very clearly a major driver of value for Prudential for several years and in 2009 it accounted for 44 per cent of new business profit."

The deal would mark a coup for Thiam. Last year, his predecessor Mark Tucker found his bid for AIA was thwarted by disagreements over price.

It is thought AIG will use the funds to pay down the estimated $130bn it still owes the US government. Current trading for the group remains weak. Last week AIG said it had lost $8.87bn in the fourth quarter.

Panmure Gordon's Barrie Cornes called Thiam's swoop for AIG's Asian arm "audacious and opportunistic" – although shares suffered as markets worried about the risks in pulling off such a major deal.

Eammon Flanagan at Shore Capital said the deal was "a no brainer" and a "terrific idea", but sceptical analysts at Oriel and Panmure Gordon downgraded Prudential's shares.

"It's going to be enormously dilutive," warned ING analyst Kevin Ryan.

"No-one knows exactly what AIA contains or how profitable it is, or how it overlaps with Pru's existing businesses."

Prudential also announced it had broken back into profit in 2009, generating 676m, after it brought forward its results to coincide with the deal.

It said that its Asian business would be the "engine of the group's future growth" as it reported record sales in the region for the last three months of 2009.

The group revealed APE sales had increased 43 per cent to 1.3bn in Asia, 27 per cent to 913 in the US, but fell 24 per cent to 723m in the UK.

Thiam said that Prudential would retain its name and planned to keep its ailing British division "for the foreseeable future", dispelling speculation the business might be sold so the group can concentrate on Asia.

Resolution, the acquisitive UK insurance group led by Clive Cowdery, scotched rumours yesterday that it was in talks to buy the Pru's UK business.

Barnard said a sale of the UK life business was "unlikely" but that eventually the Pru could consider a sale to help pay down debt.

"As Prudential transforms into an Asian insurance company, this part of the business becomes less relevant and realising value could help pay down debt or mitigate the financing needs," said Barnard.

IN NUMBERS

2,800 people work for Prudential in the UK including 1000 in Scotland at its offices in Craigforth, near Stirling. There are over 3,000 Pru staff in the US and 1,800 in Asia.

30 million the number of customers at the merged Prudential and AIA.

$340m a year, or 227m – how much chief executive Tidjane Thiamin estimates he can cut from the business.

1848 the year the Pru was founded in Holborn, London

2 the rank of Pru ceo Tidjane Thiam on a list of the 100 most influential black people in Britain.

14bn rights issue, just higher than the previous UK record 13.5 billion fundraising by Lloyds Banking Group last year.

$129.26bn the amount of assistance from the US government AIG still owes.

28 businesses in 13 Asian countries, where Prudential Corporation Asia already operates.

174bn the amount of Pru's funds under management at the end of 2009

14% the depth of the slump in value of Prudential's shares yesterday as investors baulked at the scale of funding needed to do the deal. Prudential shares closed 12 per cent down at 530p