DEALTALK-Prudential CEO prepares to face the AIA sceptics

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* Prudential bets its future on Asian AIA deal

* Shareholders see rights issue narrowly gaining approval

* Prudential is break-up target if deal voted down

By Victoria Howley and Raji Menon

LONDON, April 30 (BestGrowthStock) – Tidjane Thiam has changed the
face of Britain’s Prudential (PRU.L: ) for good, regardless of
whether his $35.5 billion bid for AIA succeeds or not.

The insurer will either land one of the most audacious
takeovers since the start of the credit crunch — still the most
likely option by a slim margin — or be left behind looking
vulnerable as a takeover target itself.

“Large and small shareholders have reservations about the
price of this deal, although they don’t dispute the strategic
logic,” said James Chappell, a financial services strategist at
UK broker Olivetree Securities.

“Management will need to show how buying AIA will create
more value for shareholders than spinning off lower growth
businesses like the UK or U.S.”

Prudential has already started meetings with its largest
investors in a final attempt to win over sceptics ahead of the
issue of prospectuses for its $21 billion rights issue and Hong
Kong and Singapore listings on or around May 5.

Under the deal, AIG will receive $10.5 billion in Prudential
shares, while the UK insurer will also raise $5 billion in debt
to round out its financing.

The takeover of AIA — AIG’s (AIG.N: ) Asian life insurance
business — will make Prudential Asia’s biggest foreign insurer
overnight, boosting its exposure to soaring demand across the
region as growth slows in its home market.

But investors are wary of the the sheer size of the rights
issue, equal to Prudential’s market cap, that will dilute their
exposure to the company.

“I think it will be quite difficult for Pru to get this
through given they need 75 percent (approval from shareholders)
– that’s quite a big hurdle rate. I think it’s only 50/50 it
will go through,” a top 20 Prudential shareholder told Reuters.

Prudential’s largest shareholder, Capital Research &
Management, this week fired the first shot in what might become
a shareholder revolt, revealing its misgivings about the deal, a
person familiar with the matter told Reuters.

Another top 10 investor also said the deal might struggle to
get the required approval, and that there might be more value in
breaking up Prudential. [ID:nLDE63Q0SA]

BREAK UP RISK

A vote against the AIA deal will leave Thiam’s role at the
head of the company in doubt and put Prudential in play as a
takeover target, investors and analysts said.

“If they don’t get the 75 percent, a few heads are going to
roll, not least the CEO’s. He has staked his career on this,”
said another investor, who added that he thought the deal would
just scrape through.

Thiam, a French-speaking national of Ivory Coast where he
was once a government minister, has made his mark at Prudential,
launching the transformational deal after just five months at
the helm and only a few years with the company.

While expectations of a break-up bid before a shareholders’
vote on the deal are cooling, potential buyers for Prudential
assets are in all likelihood already waiting in the wings in
case the rights issue is voted down.

“Buyers would be queueing up to get their hands on
Prudential Asia, but it will be far more difficult to sell the
slower growing U.S. and British parts of the business,” said an
investment banker who is not involved in the deal.

Thiam has admitted to holding talks with Resolution (RSL.L: ),
a British buyout firm founded by Clive Cowdery, over the sale of
the insurer’s UK arm, which analysts at Shore Capital have
valued at around five billion pounds.

ASSET SALES

The prospectus would have to include some “jam today” for
shareholders, Eamonn Flanagan of Shore Capital said, possibly in
the form of asset sales to bring down the purchase price.

He suggested this could include parts of Asia or China,
given anti-trust issues there.

But bankers say Resolution is the only buyer for the
business, meaning it would drive a hard bargain on price which
would not compensate Prudential adequately for the loss of
cashflows generated by the British unit.

Asian insurer Ping An and Prudential’s British rival Aviva
have also been named as players in a potential break-up bid.

“Aviva has the guts for a break-up but its shareholders are
not happy with management so they wouldn’t give it the money or
the authority to go ahead,” said an analyst.

Chinese insurer Ping An made huge losses from a wrong bet on
its investments in Belgo-Dutch bank Fortis during the financial
crisis. Its chairman Ma Mingzhe said in March the group was not
interested in teaming with Prudential for the AIA bid.
[ID:TOE5BN08K].

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(Additional reporting by Clara Ferreira Marques and Douwe
Miedema; Editing by David Cowell)

DEALTALK-Prudential CEO prepares to face the AIA sceptics