Victory for Prudential shareholders

2 June 2010

UK insurer Prudential has bowed to shareholder pressure and ditched plans to buy the Asian operations of AIG.

This has saddled the FTSE 100 insurance giant with a £450 million bill to break the controversial deal.

The move follows the failure of a last-ditch bid to renegotiate the price - and could spell the end for chief executive Tidjane Thiam who has been in the job since October.

Chris Alexander of BNP Paribas Wealth Management says: "Management changes are likely and the confusion over the deal must lead to questions over the future shape of the group - and perhaps its independence."

However, he believes that while the cost of calling the deal off is "substantial" this should not be enough to threaten shareholders' dividend payment.

In March, Prudential agreed to buy AIA for $35.5 billion (£24.6 billion), but last week asked for the price to be cut to nearer $30 billion to satisfy key shareholders.

AIG said yesterday that it would "not consider" any revision to the terms of the deal.

The collapse of the deal spells the end of Pru's efforts to tap shareholders for a record £14.5 billion.

Many shareholders had been concerned that the insurance giant was paying too high a price for AIA.

Paul Mumford, senior fund manager at Cavendish Asset Management, said it was the shareholders who were shouldering all the risk and were "justifiably angry at propping up the short-term profits and the reputations of those close to the deal".

The company's chairman, Harvey McGrath, said: "We listened carefully to shareholders over the price and initiated a renegotiation of the terms with AIG. Unfortunately, it has not been possible to reach agreement. We are therefore withdrawing from the transaction."

Group chief executive Tidjane Thiam has always maintained that the acquisition, which would give the Pru around 30 million customers in Asia, would create a business which could be worth $60 billion in three years.

Today he commented: "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.

"Our existing business in Asia has delivered another record performance in the first quarter of this year and we will continue to focus on generating sustainable shareholder value across our portfolio."

Its shares slid 2.5 per cent to 560.5p on the news this morning. 

Add new comment