David Prosser: The man from the Pru fights for his future
Wednesday 02 June 2010
Outlook Should he stay or should he go? There is no doubt the credibility of Tidjane Thiam, of whom so much was expected on his accession to the chief executive's office at Prudential just eight months ago, has been severely damaged by the AIA debacle. But has it been damaged so badly that he cannot continue in the role?
The problem for Mr Thiam is that he has so publicly misread the mood of the shareholders who employ him. And that he made that mistake at an insurance company with a very recent history of management falling out with key investors – witness the ousting of the previous-chief-executive-but-one following a rights issue 14 times smaller than the scheme Mr Thiam envisaged – makes that all the more unforgivable.
From the moment Prudential unveiled its Asian adventure, shareholders wondered out loud whether it was paying too much for AIA while understanding too little about the risks the deal entailed. That this acquisition might be to Prudential, in other words, what ABN Amro was to Royal Bank of Scotland.
Despite the chuntering, Mr Thiam had to be publicly embarrassed into turning down a lucrative non-executive role at the French bank Société Générale. And then he made another error. Prudential's spinners have tried to suggest that the Financial Services Authority's intervention in this affair, which delayed the deal and gave rebel shareholders yet more fuel for the fire, was unexpected and last-minute. In fact, the regulator warned the insurer about its concerns weeks in advance of its veto of the official launch of the rights issue, but Mr Thiam appears not to have properly focused on the problem.
Nor should we forget the cost of this affair. There's a break fee of a little over £150m to hand over to AIG, plus millions more to pay in advisory charges.
What, then, is the case for the defence? Well, at least Prudential's strategy looks to be the right one: almost every independent insurance analyst now thinks Asia is the place to be for future growth prospects and rivals that have not taken that view in recent times are scrambling to catch up. Also, as finance director, Mr Thiam has already played an important role in building an impressive recent performance by the insurer.
On the specifics of this deal, AIG's reluctance to cut the sale price does do Mr Thiam a back-handed favour. It must be sure that offloading its Asian operation via an initial public offering would secure it greater value than Prudential is now offering – and by quite a margin, given the relative uncertainties of that route to disposal. The view that Prudential's initial offer hugely overvalued AIA, in other words, genuinely appears not to have been shared by its American parent company.
We shall see. Assuming AIG gets AIA to market, we'll get a real yardstick of its value, rather than the theoretical prices about which Prudential has been arguing with its shareholders. Unless that process makes Mr Thiam look utterly daft – and since the scale of his ambition is being tilted in the right directions – he should, on balance, get more than eight months to prove himself at Prudential.
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