One to Watch: Prudent investment

PRUDENTIAL Corporation is an international financial services company, providing retail financial services on both sides of the Atlantic and Asia.

The mighty Prudential's share price has fallen by almost a fifth since the company announced a near 24 billion takeover of the Asian life business of AIG, the stricken US insurer. The decision to buy AIA would result in Prudential more than doubling in size and with a dominant role in many Asian markets.

Prudential Corporation has certainly become a hostage to fortune for the next couple of months. The deal will be largely funded by the largest ever rights issue of $21bn (13.9bn), but before the terms can be confirmed and prospectus published, AIA's accounting practices will have to be restructured to come into line with that of its ambitious predator. This delay could trigger nervous selling.

Informed reports suggest the rights terms will be four new shares for every one held, at a price of 140p, a theoretical ex-rights price of around 210p. There appears no shortage of support for the rights call: a number of international financial institutions are happy to underwrite the terms.

Prudential's shares will be a volatile counter for the duration of this deal. However, if it falls away, ironically, the shares of the insurance giant's rating may return to pre-bid levels. Longer-term, assuming the transaction goes through, Prudential will be ideally placed as a major force in some of the most dynamic economies in the world. Moreover, investors today should have the opportunity to take up their new allocation at a discounted price, wherever that level might be, which seems to limit the downside pressure from these levels.

The value of your investment could fall and you may get back less than you invested. You should take professional advice if you have any doubt about the suitability of this company for your portfolio.

WPP

645.5p +21.5p

Broker says HOLD

KILLIK & Co says advertising and marketing firm WPP's annual results were slightly ahead of expectation, but there could be further challenges on the horizon. The broker says: "There are still concerns over the late-cycle nature of the business and the level of operational gearing inherent in the agency model for a recovery."

AMEC

783.5p +18p

Broker says BUY

ALTHOUGH AMEC's key markets are likely to remain subdued, Collins Stewart believes there are opportunities in its share price.

CS says: "The weakness in the shares over concerns around the near-term represents a buying opportunity, given AMEC's strong positioning in key markets and projects for the upturn."