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Does Pru face Capital roadblock to $35.5bn AIA takeover?

Robert Peston | 16:06 UK time, Monday, 26 April 2010

I am hearing that the Pru's largest shareholder, Capital Research & Management, is underwhelmed by the British insurer's record-breaking planned takeover of AIA, the Asian arm of the giant, troubled US insurer, AIG.

PrudentialIn fact word reaches my ears that Capital would prefer to see a pre-emptive break-up bid for the Pru than vote through the $35.5bn takeover of AIA.

An authoritative source tells me that a Capital executive recently held talks with a British financial firm, to probe whether that firm would participate in an initiative to dismantle the Pru.

Capital is one of the biggest fund managers in the world. And it is far and away the most substantial investor in the Pru, with a 12% stake.

It can't block the AIA deal single handed. But if it's determined to vote against the takeover, well the Pru would face a big obstacle to completing the deal.

As you'd expect, I put all this to Capital. This was the response of a spokesman:

"I can neither confirm nor deny whether a conversation between ourselves and another British company took place regarding the proposed Prudential-AIA deal, and/or potential alternatives to the proposed deal structure. In general, conversations that we have with others within the industry are confidential, and therefore we wouldn't be able to comment about such matters in any event."

As for the Pru, it says that it has had constructive conversations with Capital and that there are some weeks to go before Capital has to formally make up its mind whether to approve or vote against the AIA takeover.

There are those close to the Pru who believe that if it came to the crunch, the US Treasury - which controls AIG having bailed it out in the autumn of 2008 - would lean on Capital to "do the right thing".

Really? In the home of the brave investor and the land of free-market capitalism, the US government would strong-arm a giant investment firm to put the putative interests of US taxpayers ahead of its clients?

I suppose the US Treasury might try, but there's no guarantee it would succeed.

Comments

  • Comment number 1.

    I wonder how the legislators are tranferred in these takeovers...with this package you get the two Senators from____ and five Representatives.
    Counting on the banks to do the right thing! If I am not mistaken didn't the banks reduce retirement accounts and investments of their depositors????...paying themselves bonuses while the unemployment they caused raises.....seems like a group of caring guys...yes, count on their altruistic past as an indication of future behaviors. Governments begging bankers to do the right thing....who is in charge here? Need someone to actually represent the people in these matters as they have no one at the table.

  • Comment number 2.

    This is all back to front. We're pulling these giants apart, not allowing them to bloat even more! Somebody tell these guys to get with the program.

  • Comment number 3.

    The idea is for the governments, both UK and US, to have to implicitly approve the takeover. That way there is somebody to blame. Somebody to claim compensation from.
    Not 15 p in the pound either.

  • Comment number 4.

    well let's face it - when push comes to shove, goverment-owned institutions, banking giants in particular, rarely get bent over the barrel like they should after being rescued by wads of cash.

    There is no way the treasury could strong-arm a fund with (rough calculations) £9 billion invested....so don't count on it.

    More likely is your other scenario, where capital may try to go via other means to stop the acquisition....

  • Comment number 5.

    I agree with Capitol, we all know what happened to Lloyds too big and too far and has virtually destroyed the bank in the short time. we voted against that take over, but as usual no one listens to the small share holder, when the time comes I will vote against this take over, though again no one will listen!!I will not take up shares and may sell all.

  • Comment number 6.

    Robert,

    Are we seeing here a form of democracy at work?

    Capital have a large investment in the Pru and are about to enforce their right to vote. Perhaps the management of the Pru have over-estimated their main investors right to a fair deal. Perhaps they should have been more honest with their investors generally instead of taking them for granted and expecting them to follow the party (sorry - company) line.

    Do I feel an analogy coming on here?

  • Comment number 7.

    I thought new age thinking was that big is not good any more?
    And with all the money being thrown into china quickly, what happens when it goes wrong? Quickly....
    I would have thought a bit of caution would be in order. But then I am not a banker or a businessman.
    What do I know?

  • Comment number 8.

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

  • Comment number 9.

    I felt from the start that the Pru were paying too much for AIA and that the economics of the bid didn't stack up.

    I can't see Capital being strong armed too much as the fear for the US government is that the deal falls apart. There aren't many other insurers out there big enough to swallow up AIA.

  • Comment number 10.

    "There aren't many other insurers out there big enough to swallow up AIA."

    That includes the Pru, by the way, but "they" are not buying AIA as such. By raising the necessary capital in Asia, in effect this deal sells AIA back to asian investors, but under Pru management. And since the Wall of Money is still looking for assets, who better to sell AIA to?

  • Comment number 11.

    Does Pru face Capital roadblock to $35.5bn AIA takeover?

    Yes - the deal is thought to be 'too big' for a British Firm in the US.

    They prefer riding rough shod in the UK like Kraft did with Cadbury?

    The complex web of Amercican protectionsism?

  • Comment number 12.

    Governments interfering with markets?

    It makes a change from the traders doing it!

    http://www.youtube.com/watch?v=gMShFx5rThI&feature=related

  • Comment number 13.

    Does Pru face Capital roadblock to $35.5bn AIA takeover?
    I sincerely hope so!
    Capital Research & Management Co., Prudential’s biggest investor, is backing the rights issue because it wants to stay in Prudential. This deal is going to happen IF Pru can get sovereign wealth funds in Asia to support it. Some skepticism comes from the inexperienced management team. My skepticism comes from “sovereign wealth funds (SWF)” in Asia = state-owned investment funds composed of financial assets such as stocks, bonds, property, precious metals or other financial instruments. Where have I heard this before: "Sovereign wealth funds"?
    PIIGS STUPID!
    Some countries have grabbed attention by making bad investments in several Wall Street financial firms including Citigroup, Morgan Stanley, and Merrill Lynch. These firms needed a cash infusion due to losses resulting from mismanagement and the subprime mortgage crisis.
    March 1st statement: AIA has 320,000 agents and about 23,500 employees in 15 Asian markets with 23 million customers.
    Prudential has life insurance and asset management operations in 13 Asian markets, where 410,000 agents and distribution partners serve more than 15 million customers. The acquisition would make Prudential a leader in Asian markets including Hong Kong, Singapore, Malaysia, Thailand, Indonesia, the Philippines and Vietnam.
    Prudential’s profit from new business in Asia expanded 12 percent last year to 713 million pounds.
    AIA’s profit from new business slumped 41 percent to $570 million in 2009.
    I look at AIA in the context of their 2009 results and get a queasy feeling. I wonder about AIA accounting statements; I wonder about Rebos and toxic debt...I personally would not want to touch any company that was involved in a bailout; AIG, and therefore AIA, was at the center of the financial crisis. They were uniquely impacted by it.
    The UK insurer won’t make a decision on whether to sell part of its China operations until discussions with the China Insurance Regulatory Commission and Prudential’s Chinese partner Citic Group have ended. (The CITIC Group, formerly the China International Trust and Investment Company, is a state-owned investment company of the People's Republic of China.)
    China’s regulation doesn’t allow foreign insurers to hold two life licenses in the country at the same time. AIG is the only foreign insurer allowed to run 100 percent owned life insurance operations in China. Other foreign players, including Prudential, are restricted to owning no more than half of their local life ventures with Chinese partners. Regulators in Hong Kong, Taiwan, China and Singapore may also restrict AIG’s subsidiaries from paying dividends.
    Capital Research & Management is one of the biggest fund managers in the world. And it is far and away the most substantial investor in the Pru, with a 12% stake. It can't block the AIA deal single handed.
    I don’t care how much wheeling & dealing, leaning & preening the US Treasury does. I say, let the deal die.
    It seems to me that the US being in the financial position that she is, and having all kinds of trouble with China, may have seen a way to tackle China’s sovereign wealth; I believe China will see this too.

  • Comment number 14.

    What would be very revealing would be an insiders take on why the Pru are even contemplating such a risky move (If they go ahead a name change is a must - prudential it is not). What is the psychology of the board. Unhappy with their massive pay packages? They still want to be at the centre of something that is the biggest in the world. Was that a motivator for Sir Fred and his disastrous takeover of ABN Amro. We need more whistle blowers. We need a generous fund to pay them handsomely. I could manage a tenner - any one else to chip in?

  • Comment number 15.

    Educated, talented?

  • Comment number 16.

    The way forward for Pru is a takeover by a bank with established presence in the Asia Pacific region.

  • Comment number 17.

    Is this just a cynical manipulation of the market?

    Capital have to find getting on for $2.5bn for their share of the rights issue. push the market up before the rights are priced and there is less dilution - or you can sell at a higher price. win-win

 

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