The man from the Pru with his head on the block

Tidjane Thiam is feeling the heat after last week's prospectus fiasco. Simon Evans reports
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The Independent Online

'Shambolic", "amateurish" and "utterly arrogant" . Just some of the words used last week to describe Prudential's handling of it's giant $35.5bn (£24bn) takeover of AIG's insurance assets in Asia. It has become a mess on a grand scale.

The supposed last-minute intervention by the Financial Services Authority spiked the insurer's planned publication of a deal prospectus and the pricing of a $20bn rights issue needed to fund the acquisition last Wednesday.

This weekend, Prudential's top management, led by an embattled chief executive, Tidjane Thiam, its chairman, Harvey McGrath, its corporate advisers led by the investment bank Credit Suisse, and spin doctors from the City public relations firm Brunswick, will be attempting to get this mega insurance deal back on track. But that won't be easy.

The watchword within Prudential at the end of last week was "sanguine", with senior management telling all who would listen it remained confident that a deal will get done. But getting shareholders to jump the required 75 per cent hurdle to back it looks to be an increasingly difficult task, with many investors reappraising their own views in light of last week's regulatory intervention.

"If management can botch this up, what chance of them executing successfully on the integration of Prudential and AIA in the longer term," said one shareholder. "Do I believe that the FSA came in with its concerns at the last minute? Of course not. Does the Pru think we are stupid or something? A very significant credibility gap has opened up."

Some investors, especially those British retail-focused index-tracking fund managers forced to hold a chunk of Pru shares whether it completes any deal or not, have always voiced concerns. One described the deal as one of the most "irresponsible and reckless act of any management in history," adding: "Investors will have to wait more than five years to reap any profits."

Prudential has sought to play down the notion of any investor rebellion but dismissing the concerns of the regulator is proving much harder. The regulator has questioned the capital strength of the Pru group should it complete the AIA deal. It is concerned that the insurer will be unable to unlock capital lurking in subsidiaries of the business, such as in Thailand, to support group-wide activities.

The FSA is also thought to have questioned the Pru's plans to conduct a "pre-deal sale" of its UK business to Resolution's Clive Cowdery.

"There is no doubt that the regulator demanded an increased amount of specificity on these sales," said one adviser close to the regulator. "And a sweetheart deal to pass off Pru UK to Res isn't top of the FSA's wish list given the regulator's history with Clive." Resolution, which owns the insurer Friends Provident, was the subject of a regulatory investigation last year. It was subsequently found to have done nothing wrong.

That the regulator has sought to bloody Pru's nose should come as no real surprise. The pair has had a fractious relationship over the years crossing swords on a number of occasions. There is a long history of antagonism between City referees and the Pru.

While the intervention by the FSA was widely viewed as the reason for the enforced delay of the Pru-AIA deal, Asian regulators have also voiced concerns. Hong Kong's regulator, in particular, is thought to have played hardball with AIA in the past when it sought to funnel capital from the country to group level.

Why Prudential's heftily paid lead advisers, Credit Suisse and JP Morgan Cazenove, failed to get to grips with these concerns has caused plenty of head scratching among investors.

At the end of last week Pru's management hurriedly sought to assuage these investors of any concerns that the regulator's intervention was nothing more than a technicality. But few buy Mr Thiam's claims. The former Ivory Coast government minister has endured some tough times in an illustrious career but this weekend he faces his most difficult 48 hours so far.

Mr Thiam first angered investors in the days after the deal was announced when leading shareholders claim they were snubbed by a contemptuous chief executive during a series of meetings. One leading shareholder said he felt like the Pru man was acting as though the deal was already in the bag.

That perception of arrogance has dogged Mr Thiam throughout and increased when he decided to take up a non-executive directorship with Société Générale just weeks into the deal process. He was forced to pass up the role when investors kicked up a stink.

"The SocGen fiasco gave an impression of cockiness that hasn't really gone away," said one banker familiar with the deal. "An increasing number of people think Tidjane has to go because he has made an almighty Horlicks of this deal. Mr McGrath has some tough decisions to make."

Already one small investor in Prudential, Neptune Investment Management, has sought a vote of no confidence in Mr Thiam's leadership. It's likely similar calls will follow.

If Mr Thiam's head is on the block, Prudential's key advisory lieutenants, Credit Suisse and JP Morgan Cazenove, are also under pressure. Mr Thiam chose Credit Suisse, where he is believed to have personal contacts.

"It was a high-risk strategy, parachuting Credit Suisse and Caz people on to the ground in Asia," said another banker. "Perhaps it has backfired because this deal feels like it is unravelling at a rate of knots."