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Will Thiam survive at Pru?

Robert Peston | 13:04 UK time, Thursday, 3 June 2010

The balance of probability is now that Tidjane Thiam will not be ousted as chief executive of the Prudential, even though he has suffered the unusually sharp humiliation of being frustrated by his own shareholders from carrying out a takeover that would have transformed his company.

Tidjane ThiamHere is why it is likely - though not inevitable - he will survive (for a dignified period at least) the buffeting from some disgruntled investors.

1) The non-executives on his board are solidly behind him - or at least that is my understanding from conversations with them.

2) Most of those shareholders opposed to the takeover of AIA, the substantial Asian insurer, were unhappy about the $35.5bn price, rather than the strategic rationale for the deal.

3) Ten of the Pru's top 12 shareholders told the company on Monday that they would back the $30bn revised price that Thiam thought he had negotiated with AIA's owner, AIG.

4) The collapse of the deal leaves AIA and its employees unsure of their future, after many weeks of believing (with reluctance) that the Pru would be the new owner and employer. Which may deliver a competitive advantage to the Pru's existing and fast-growing Asian operation.

5) The Pru now knows more-or-less everything it is possible to know about AIA, thanks to the due diligence process it conducted during the takeover attempt - which again should hand the Pru some kind of competitive advantage. Those valuable industrial secrets may or may not be worth the £450m the Pru has shelled out in pursuing AIA, but they are worth something.

6) AIG, the parent of AIA, has just manifested potentially destabilising divisions at its apex - with its chief executive, Robert Benmosche, having agreed to sell AIA to the Pru at the lower $30bn price, but being outvoted by his board. Also, it seems that the US Treasury, the rescuer of AIG during the markets meltdown of 2008, would also have preferred the cut-price sale to have gone through. Again, such division between those responsible for the governance of an important global rival is worth something to the Pru.

7) Some investors would argue that if a Pru board member has to walk the plank, it should perhaps be the chairman Harvey McGrath, who should take that short stroll to oblivion. Most investors would probably prefer to have an ambitious chief executive at the helm, but would look to a chairman to rein in ambitions that look dangerously expensive.

8) Many Pru shareholders, when arguing against the AIA takeover, did so because they liked the Pru's existing mix of businesses - in the UK, US and fast-growing Asia - and their recent performance. So if investors are being logical (which can't be taken for granted) they would stand by the team that has been delivering that performance.

None of which is to say that Thiam hasn't been damaged by the debacle - but simply raises the possibility that the wounds may not be mortal.

Comments

  • Comment number 1.

    I suspect he will move on fairly shortly
    1) Sounds like the football managers kiss of death
    2) £5bn out on valuation is a lot
    3) Thought he had negotiaited?!
    4) Organic growth is a completely different stratergy
    5) I suspect those valuable industrial secrets have very strong to be destroyed and only used for due dilligence purposes clauses
    6) it seems to have destabalised the pru too
    7) Or both
    8) Thaim only took over Oct 2009, how much credit can he take for the existing business mix

  • Comment number 2.

    All this concern and involvement at the board and shareholder levels. Investigations and sorting of potential and future growth and RISK. Wonder where all these people were when they were participating in the bubble created by some of the very people? The good thing is that they lost money too. The bad thing is that they want to make it all back and more.....another bubble?

  • Comment number 3.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 4.

    Robert, do you ever have anything positive to say? The tone of this piece is typical - your acknowledgement that Thiam will probably hang onto his job is grudging at best - even tho you provide a list of reasons why he will stay. Typical poor journalism in the same vein as your miserable attacks over the last 3 years over everything and everyone in the banking sector.

    I dont want happy-clappy journalism putting a gloss on everything - but is it too much to expect BBC journalists to provide objective and balanced reporting delivered in a neutral way?

  • Comment number 5.

    > for a dignified period

    You got that bit right. Look, this is Anglo-Saxon style capitalism. We never give a sucker an even break.

  • Comment number 6.

    Robert,

    You seem to be making a big deal out of this story and it's really minor. It's not a 'revolution by the shareholders' as I commented previously. This is a few big hedge funds and institutional investors who don't think it's a good idea to overpay for AIA just before the stock market collapses.

    I mean they must have pretty strong convictions if they are prepared to write off so much wasted money in putting together the proposal.

    They know the crash is coming - it's why the ECB was buying Euro's when it hit a 'long term low' and why all these institutional bond holders dumped their PIIGS debt on the ECB when the offer was made.

    If people choose not to read the obvious signs then it's their fault if they get burnt.

  • Comment number 7.

    'a takeover that would have transformed his company' No! The company he manages on behalf of its shareholders. This is what many CEOs have forgotten and need to learn it is not THEIR company its the shareholders company. If he had understood this his would have not made this mistake. Where is the value for shareholders in buying AIA at full price? They might as well take part in the IPO if they are interested. He is damaged goods and needs to go.

  • Comment number 8.

    I normally enjoy reading your articles Robert, but I felt distinctly nauseous after reading this one.

  • Comment number 9.

    I think you are missing some important angles:
    1. The CEO is responsible for executing the strategy of Prudential. In this regard he failed:
    a) mis-management relationships and interactions with the regulator (FSA) regarding Capital
    b) attrocious shareholder management, no deal of this size should have been launched without having key shareholders on board
    c) appauling transaction strategy and executiom
    2. to suggest that the strategy is at the whim of a 5% market movement is crass at best. 35bn was always the wrong price and he should not have tried to move forward at this level
    3. the CEO no longer has the support or confidence of shareholders in terms of judgement (price, execution etc...) It is highly likely that the team will now shy away from value creating opportunities
    4. Pru has long been a value trap, a clear and coherent strategy needs to be outlined to unlock that value. A new team needs to deliver this

  • Comment number 10.

    Re post #3, note to BBC mods.

    Re-read my post. It didn't break any rules.

    Is there only one person moderating all the blogs?

    I read all the posts on Stephanie's blog about inflation in less time it has taken you to publish 2 posts!

    As for the topic at hand:

    What has he achieved?

    He has hosed £450million up a wall massaging his own ego!

    I don't want them to be ambitious, I want them to be Prudent!



  • Comment number 11.

    I think he might do a splendid job for Robert Mugabe.
    Bob (to his friends) could probably use a little financial support now.

    Tidjane Thiam is obviously going to be made the scapegoat for the Pru.

    The man has a great personality and would have gone further if it were not for this hiccup.

    The Pru should let the dust settle before taking any action.

  • Comment number 12.

    He is history. Hopefully without compensation.

    Shareholders being asked to pay more than they should, deal costs not dependent on success?

    These fundementals and lower down the business would be sacking offences.

  • Comment number 13.

    Robert, I have always, but always, agreed with all your past postings - but am unable to this time.
    In my view: the AIA proposal was "corporate lunacy" when devised and very poorly executed and has now put the Pru "in play"
    If I'm correct - there is no way that the present CEO can or should survive: as he would be unable to extract maximum value for shareholders from bidders in his damaged state.

  • Comment number 14.

    Robert,
    As a journalist, I am SURPRISED at the level of PERSONAL involvement you've had in this case over the last few weeks.

    From interviewing Mr Thiam, prior to the takeover bid, through all the
    bids ups and downs, to now.

    Vested interests maybe? Or are you strictly neutral?

    Heaven forbid, don't tell me you are applying for the 'top job' at the Pru?!
    That would be something - the Beeb's 'man at the Pru'! I can 'smell' the fear in the City already!

  • Comment number 15.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 16.

    who cares?

    nobody as can be seen by number of posts

  • Comment number 17.

    As Robert likes to play "Guess who's going next" - lets all choose who we think is going first.

    The CEO of the Pru.
    The CEO of BP
    The next cabinet minister
    BP

    It seems the market (or should that be markit) has already stated it's case. Check out the spreads on BP and the other companies involved in this disaster.

    http://www.markit.com/en/about/news/commentary/cds/cds.page

    Don't forget folks, £1 in every £7 paid in dividends in UK pension funds comes from BP. So whilst it's amusing to see yet another TBTF big Government on the backside - it's no laughing matter for anyone who has a private pension.

    Maybe it's God's way of saying "Thou shalt not profit from the pillaging of MY world"

    I'm guessing God has an annuity or is managing his own pension fund.

  • Comment number 18.

    4. At 1:57pm on 03 Jun 2010, smell the coffee wrote:

    "Typical poor journalism in the same vein as your miserable attacks over the last 3 years over everything and everyone in the banking sector."

    Do you not think that bringing the country to the brink of Economic destruction warranted such attacks?

    ...or maybe we should just have let them all off - I'm sure they're sorry and that is was all an accident

  • Comment number 19.

    It looks like AIA will be floated by the US - so we'll see if Thaim was right with his bid or not when that happens.

  • Comment number 20.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 21.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 22.

    Hmmm. An insurance company. Now how much does this company invest in the future of our country? You know - those pesky start-ups and companies that want to make things. Can anyone tell me because whether or not I should get agitated over its fate or the fate of its CEO depends pretty much on the answer.

  • Comment number 23.

    I thought businesses ran to provide customers with good products or services? In all this inane chattering about values, tactics, boards, industrial secrets, shareholders and so on, customers are not mentioned once. Unless we, of course, come down to the parlance of "shareholders are customers" thus reducing business to a market game and not fulfilment of services to someone in return for money.

    It has probably gone unnoticed by those who have large houses, smart cars, stylish clothes and expensive shoes that customers are, by and large, pretty much treated as a "captive marginal". "So we lose a few every year through bad products and lack of customer service; there are plenty more mugs out there, but shareholders, now there's such a different thing."

    Typical boardroom speak huh?

  • Comment number 24.

    Sounds like there could a vacancy at the head of AIG soon.

    Although [US] Government influence after the bailout might deter non-American recruitment, I think Mr Thiam could be on the shortlist...

  • Comment number 25.

    I'm intrigued by Robert's analysis here, because it doesn't fit at all with what I learned earlier this week.
    First, the non-execs may be behind Thiam, but plenty of others aren't. Second, I know the shareholders are in a foul mood about him effectively blowing their dividend pool...and overvaluing the company by at least £4billion. And third, if some directors thought the price was the only problem, then they're just a naive as he seems to be: don't they read Asian data?
    But then, after a few days people calm down again, don't they? Which is why this sort of half-baked ego nonsense just keeps on happening.
    I think McGrath should definitely go, but the word I got last night was that AIA's situation wasn't entirely as advertised either. We shall see, and so shall others if they follow nbyward's Slog at Blogger.

  • Comment number 26.

    It saddens me even to think that it might be a consideration, but - having trumpeted Mr Thiam as the first 'black' FTSE CEO - the City will be loath to cast his overboard at the first hiccup.

    For me, his ability and past achievement speak for themselves; he hasn't suddenly become a poor executive, but companies (like governments) are becoming far too presidential.

    Mr Thiam is a servant, not master, of the Pru; he perhaps tried to undertake a triple-jump before he could walk, but what doesn't kill you makes you stronger.

    Provided he doesn't try to come up with another deal of similar size, to make up for this 'failure', he could benefit from making the entire board complicit in his strategy, knowing that hanging together is far les likely than hanging separately.

  • Comment number 27.

    I think he should and will get the 'sack' ... eventually.

  • Comment number 28.

    BP and Prudential: As the cream of British business turns sour, time for a change at the top

    http://www.telegraph.co.uk/finance/7801779/BP-and-Prudential-As-the-cream-of-British-business-turns-sour-time-for-a-change-at-the-top.html

  • Comment number 29.

    Certainly he has to go; in the same way that many FTSE 100 CEO's should:

    1. Destruction of shareholder value
    2. Crazy obsession with 'flag planting' the company around the world. Remember the enormous mistakes BT made in the respect. From global player to global payer. A decade of reduction in BT's market capitalisation
    3. Did someone say Thiam has charisma? I heard him justifying his spending spree saying that 'Asia is going to happen; the only question is whether we, the Pru want to be part of it'. Give me strenth, if that is insightful wisdom my budgie should be leading the CBI. We ALL know Asia is happening; the reason that he is paid a vast salary is to enter that game intelligently - not brazenly.

  • Comment number 30.

    Having worked for a blue chip insurer in a humble capacity, I have followed Mr Thiam's career with some interest. When he was made European director at NU I was impressed by his credentials and pleased he had been appointed. I believe he did a good job and when the Pru headhunted him I was very surprised. Nevertheless, I suspect that he realised that his progression in that company would be slower than his ambition could stand.

    It seems to me that those at NU (now Aviva) will feel they were right to let him go to pursue his career at the Pru.

  • Comment number 31.

    A bit off topic...but who cares...it's Friday!

    PHWOAR!!!

    Woman banker claims she was sacked for being too attractive
    http://www.telegraph.co.uk/news/worldnews/northamerica/7800778/Woman-banker-claims-she-was-sacked-for-being-too-attractive.html

    In an attempt to prove that Puerto Rican-born Miss Lorenzana cannot help but look attractive at work, her lawyer, Jack Tuckner, hired a professional photographer to take pictures of her in business attire. Mr Tuckner described his client as a "babe" and said her bosses could not resist her Latin looks "so instead they wanted her to wear a tent or a burka".

    http://www.nypost.com/rw/nypost/2010/06/03/news/photos_stories/cropped/lorenzana--300x450.jpg

    http://img.thesun.co.uk/multimedia/archive/01057/deb380_1057241a.jpg

  • Comment number 32.

    Thiam is history. No one cares for a loser, especially one that has wiped out huge amounts of shareholder value by nothing but bad judgement. No doubt he will trouser a large payoff though, pouring even more salt into the wounds of his shareholders.

  • Comment number 33.

    I'm surprised no-one's spotted this, but surely Pru's Due Diligence was conducted under the terms of a strict confidentiality agreement?

    To use any data or findings from that process for competitive advantage would be to beg for a protracted legal wrangle, wouldn't it?

    Re the critics having a go a Robert's blog - I never quite get this. No-one forces you to read it - blogs are for personal opinions, but what's the point in playing the man? If you disagree, put your view and argue it, but why criticise hime for speaking his mind? I like to read what he thinks - much better than some 'impartial' corporate line from the Beeb! Doesn't mean I agree with everything he writes...

  • Comment number 34.

    Boredom. That and thinking that other peoples jobs are easier.
    They might well be of course but he has been employed to run the Pru.
    He hasn't been employed to play high stake gambling.
    He is on his way out.
    Think about it. Who wants to employ someone with wander lust?
    Somebody that just wants you to take on more than you can chew.
    Hardly a good line in your CV. Or a good image in your corporate photo.

  • Comment number 35.

    33. At 1:28pm on 04 Jun 2010, JPStrategy wrote:

    "Re the critics having a go a Robert's blog - I never quite get this. No-one forces you to read it..."

    No, but we are forced to pay for it.

    It is due to the unique way the BBC is funded.

  • Comment number 36.

    @ 30. At 11:55am on 04 Jun 2010, inacasino wrote:

    > It seems to me that those at NU (now Aviva)

    When did the NU merge with a bus company?!?

  • Comment number 37.

    re # 36
    The do-it-all corporation, taking you from cradle to grave ...

  • Comment number 38.

    #36 I see we really have reached the bottom of the barrel!

  • Comment number 39.

    @ 38. At 9:32pm on 04 Jun 2010, inacasino wrote:

    > I see we really have reached the bottom of the barrel!

    Look, I've got nothing at all against Tidjane Thiam, whoever he might be. I've heard he's a great guy.

    But he's also an inhabitant of "The City", and that automatically makes him lower than whale shit. As low, even, as Tony Hayward, who is about 5,000 feet under the Gulf of Mexico (which is pretty deep, believe me).

    So, low as he is, some people stupidly believe we could overlook the matter of a £5bn blunder. How naive can you get, post 2007? It makes me wonder...

  • Comment number 40.

    Sir Fred Goodwin
    Royal Bank Of Scotland
    ABN AMRO
    £49Bn takeover
    CRASH!!!!

    ring any alarm bells anyone?

  • Comment number 41.

    LostatHome and inacasino.

    Your comments made me think of probably the 64 million dollar question.

    It's something about the fine line between ambition and arrogance. When does the first become the second?

    Is it after people fail (especially spectacularly, like Fred the Shred) that they are perceived as having been arrogant and/or egotistical, or even having had a "crazy obsession with 'flag planting' the company around the world"?

    What stops these financiers reining in their ambition to within the boundaries laid out by prudence? Is it lack of integrity, lack of humility, obsessiveness, personality disorder, or what?

    I mean, for sure the same can be said of some politicians, and probably of some former PMs.

    Buy what is it with this need to dominate the market, to suppress all opposition? At times, listening to some CEOs and Chairs, sounds like listening to the Daleks' latest plot to dominate the universe.

  • Comment number 42.

    Robert - Pru and BP and the latest guff about UK budget by young Mr Osborrne is al well and good. What I would really appreciate right about now is your views on

    - the inconsistent messages coming out of the G20 Finance Ministers Meeting;

    - the likely approaches to be taken in fleshing out the detail of the EU sovreign debt safety net; and

    - the stress testing of the European Banks.

    Seems to me there is not much cause for optimisim in that little lot.

  • Comment number 43.

    Affirmative action at work for the good of shareholders.

  • Comment number 44.

    I don’t know if Mr. Thiam will survive the collpase of the deal, but my personal decision would be NO. Time for Mr. Thiam to move on.
    It seems to me that someone needs to held accountable for @ £500 million in essentially wasted fees.
    Did Mr. Thiam not realize that he was dealing with parent company AIG – a company bailed out by the American taxpayors? What made Mr. Thiam think that AIA (a bastard child of AIG) could possibly be merged thereby creating an American taxpayor loss?
    Also the communication with shareholders was rather anemic. The PRU spent more time treating its shareholders like a less intelligent species than explaining to them the pros and cons, the whys and the wherefors.
    I also fault Mr. Thiam for a lack of independent research; Mr. Thiam seemed fixated on PRU marrying AIA. Why did Mr. Thiam not realise the FIXED PRICE before falling on his face?
    Also and finally there was the implication of AIG/AIA hedge funds; hedge funds have a vested interest in deals going through because they want a payout – but the payout is hedged. It could be for success; it could be for failure.
    Mr. Thiam should have distanced himself from this deal with the proverbial ten-foot pole.

  • Comment number 45.

    41. At 12:25pm on 05 Jun 2010, Sutara wrote:

    Buy what is it with this need to dominate the market, to suppress all opposition? At times, listening to some CEOs and Chairs, sounds like listening to the Daleks' latest plot to dominate the universe.


    Dr David Owen has written two books you may find helpful:

    1)The Hubris Syndrome: Bush, Blair and the Intoxication of Power
    2)In Sickness and In Power: Illness in Heads of Government During the Last 100 Years

    He has written about politicians, but since a number of American commentators are now referring to the CEOs, market spivs etc as the 'Virtual Senate' meaning they control policy by punishing governments who act in ways that displease them while we voters are basically irrelevant, then perhaps these books explain all.

  • Comment number 46.

  • Comment number 47.

    As a person that works hard and enjoys doing so ( great unwashed ) Could I please be paid in cash instead of being told that if my hard earnt wages are not paid into a bank account I will not be paid? I am tired of my wages either being stolen by the banks or being encouraged through loans that cannot be afforded to steal from the banks ( sponging middle/ upper class )I could always be paid what I had made in cash before the Tories were in power last time. This was a legitimate job by the way. simplistic yes....is that not needed now?

  • Comment number 48.

    Never believe that the due diligence will come up with all the salient facts. My experience in the past is that many of the consultants and even employees just want to please the boss and confirm to him what he wants to hear. The RBS seems to have bought a lot of business that dragged them under, presumably after due diligence. So that figure of £450m may be a complete waste of money. The first rule of due diligence should be to attempt to firmly shatter the CEO's ego.

  • Comment number 49.

    Most companies have rights issues when they're in some sort of trouble. Rights issue defined:

    "Rights issues are undertaken by companies who wish to raise capital. Companies often choose to do this when their debt to equity ratio has grown too high. The injection of fresh money increases company equity."

    In other words, the PRU's purchase of AIA was going to run their debt-to-equity ratio up to a unacceptable level. Quite simply they were not going to get enough equity when they bought AIA to compensate for the debt they were taking on. Hardly the most attractive of business transactions! I'm surprised it got as far as it did before sanity prevailed. Mind you, as you pointed out Robert, the cost of the insanity has been £450 million in fees. Someone's smiling, even if it isn't the shareholders.

  • Comment number 50.

    This comment was removed because the moderators found it broke the house rules. Explain.

 

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