Backing for probe into Prudential bid

INSTITUTIONAL investors have thrown their weight behind a regulatory probe into the handling of Prudential's abortive $35 billion (£21.3bn) bid for Asian life assurer AIA last year.

Many institutional shareholders were livid at the takeover attempt because of what they saw as a highly inflated offer price. The insurer was also accused of poor communication.

This weekend shareholders backed a decision by the Financial Services Authority to order the Pru to commission an independent inquiry because of concerns about the management of the AIA deal. City law firm Clifford Chance will conduct the investigation.

Robin Geffen, managing director of Neptune Asset Management, an outspoken critic of the Pru's management at the time, said he supported the inquiry, known as a "Section 166 skilled persons report".

Geffen told Scotland on Sunday: "There were manifest errors in procedure at the time by Prudential. The lack of consultation was extremely poor, to the point of extreme arrogance. They (the board] seemed more interested in talking to people who just wanted to pat them on the back for the deal rather than those who had legitimate concerns about it. Institutions' concerns were partly about the price and partly about the nature of the deal: it was conceptually flawed. Shareholders have a right to know what is going on behind closed doors."

Another institutional shareholder said: "If nothing else, such an FSA inquiry will make it less likely that another major company behaves in such a cavalier way to shareholders on such a major acquisition in future."

People familiar with the matter said the Section 166 report would focus on the Pru's investment bank advisors Credit Suisse, JP Morgan and HSBC, and whether they discharged their duties properly.

An FSA spokesman said the regulator would never comment on individual companies made the subject of a 166 report in advance of any conclusions. But he added that such inquiries can result in recommendations for changes to procedures at the companies involved. Royal Bank of Scotland was made the subject of such a report last January, leading to an extensive review of its complaints handling process.

Paul Mumford, senior fund manager at Cavendish Asset Management, said: "This was a very big strategic deal by the Pru and looked very expensive (also involving a $20bn rights issue).

"You have to question the advice the group got from its advisers. They should have consulted the investors more than they did and got feedback on the feeling that they were overpaying."