Pru executives fight for survival after AIA deal is declared dead
The Prudential insisted yesterday that it was backing its chief executive, Tidjane Thiam, and chairman, Harvey McGrath, amid mounting pressure for heads to roll after the insurer's planned $35.5bn (£24bn) takeover of its Asian rival AIA collapsed.
The Pru formally killed off the bid last night after failing to lower the price during talks yesterday with AIA's owner American International Group (AIG). The Pru will hand over a £153m break fee.
The Prudential said Mr Thiam and other executives had "the support of the board". "Tidjane Thiam is the chief executive of Prudential; Harvey McGrath is the chairman," it added, indicating that there were no plans for either to step down.
That could mean a stormy annual general meeting on Monday, at which the Pru had originally hoped to secure shareholders' support for the AIA bid. In addition to the break fee, the life insurer said it had also racked up £300m in one-off costs, which was worse than had been feared. A large portion of that will go to its bankers at Credit Suisse and lead share-issue underwriters JPMorgan and HSBC. The Pru's public relations adviser Brunswick will also take a cut.
Prudential has faced sharp criticism about its communications as the deal progressed, and for paying too much. An attempt over the weekend to cut the price to $30.3bn (£20.7bn) failed when AIG refused to alter the terms.
Mr Thiam said yesterday: "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. We agreed with shareholders that a renegotiation of the terms was necessary given market movements, but it has not proved possible to reach agreement."
Analysts are now speculating about a possible break-up of the Pru, with Clive Cowdery's investment vehicle Resolution known to be keen on taking on the UK business. However, others cautioned Prudential to beware of any mergers and acquisitions unless it could secure a sufficiently high price for any of its units. This may prove difficult given the current uncertainties afflicting the world's financial markets.
Experts also raised the issue of Mr Thiam's future after landing the company with such a heavy price to pay from the AIA negotiations.
James Chappell, of Olivetree Securities, said: "Rather than M&A speculation, what the Pru needs now is a period of stability. Shareholders need to carefully decide who they want in charge to achieve this, with next week's AGM pivotal for current management's chances."
Tony Silverman, of Standard & Poor's, added: "Pru will now encounter some uncertainty around the group's future territorial focus and that uncertainty may extend to agents' comfort with group strategy, and even to senior management's tenure."
Shares in the Pru fell yesterday, closing 14.5p lower at 561p.
The runners and riders: Who could replace Mr Thiam at Pru?
Mark Tucker: The return of the prodigal son?
The previous chief executive, who left saying he had achieved what he wanted to and felt he had one more "big job" in him. It is still not clear what that might be and sorting out the mess at Prudential would fulfil the criteria even if it were only as a stop-gap. Tucker will not miss the World Cup (he has attended every one since 1966) but has strong links to the company and shareholders would welcome him with open arms.
Michael McClintock: The safe pair of hands?
Currently the boss of the independent republic of M&G, Prudential's semi-detached fund manager. Has a low public profile and is not really an insurance man, but is liked and respected in the City and could be just the man to steady the ship and restore credibility after the recent upheaval. His links with the investment community could be key to restoring faith in the Pru among its shareholders. But does he actually want the job?
Clive Cowdery: The barbarian at the gates?
Wouldn't be chief executive, but would surely be running things from behind the scenes if his Resolution could secure a takeover of Pru UK. He wants the deal so much it hurts, because it would fulfil his ambition to create a UK 'super-insurer' by combining the business with Resolution's Friends Provident and make him a second fortune. The insurance entrepreneur is, however, a controversial figure and would seek to drive a hard bargain with Pru, which will not enter into another deal without the full support of shareholders.
David Nish: Our friend in the North?
A crazy suggestion? Perhaps, but a combination with Standard Life could make some kind of sense, for the UK business at least. A deal would cement Mr Nish's reputation and make his company relevant again after its failed attempt to tie up with the first incarnation of Resolution a few years ago. And the all-important regulators might well prefer it to the alternative.
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