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Is the Pru being Prudent?

Robert Peston | 08:24 UK time, Monday, 1 March 2010

Companies that expand by acquisition are what they eat.

And sometimes a company buys something so big that it changes them almost beyond recognition.

Vodafone was transformed from ambitious British upstart into the world's biggest mobile operator with its purchase of Mannesmann a decade ago.

BP was promoted to the premier league of oil companies with its acquisition of Amoco.

And, if anything, the Prudential is attempting an even more radical reconstruction of what it is, with its takeover of AIA, the Asian arm of the battered, US insurance giant, AIG.

Head offices of Prudential

The £20bn plus transaction would more than double the size of the Pru and would make it the biggest life insurer in Asia.

The sale has been approved by the US government, which rescued AIG in the autumn of 2008, and by AIG's board: there's likely to be formal confirmation later today.

In the meantime, the Pru has requested that trading in its shares should be suspended. Which, I think, is almost without precedent for a business of the Pru's size and importance.

But the Pru takes the view that it's very hard for investors to value its shares, prior to disclosure of precisely what it is buying and how.

The price for AIA will be around $35bn or well over £20bn.

It will be financed by a rights issue of around that magnitude, which would probably be the biggest ever rights issue of new shares by a British company - and possibly one of the biggest ever rights issues by any company anywhere.

In the UK, only the emergency rescue rights issues of Royal Bank of Scotland and Lloyds have come anywhere close in respect of amount of money raised.

What's the point?

Well it would turn the venerable old Pru - a company whose history is woven into the thread of Britain's financial and industrial past - into the market leader in life insurance in Asia.

It is already number two in Asia. And the takeover of AIA would make it the clear number one, with more than 40,000 employees and hundreds of thousands of tied agents.

The Pru believes it would become the HSBC of the life insurance world - viz a company with headquarters in old-economy London, but with the bulk of assets and its prospects in new-economy China, India, South Korea, Singapore and so on.

And the point about being in that region is not just that it is growing fast. It is also that the inhabitants save vastly more than we do here in the UK, even though their living standards on the whole remain much lower than ours.

That said, there are always risks - very substantial risks - in swallowing something bigger than oneself (don't think about that too long, or you'll feel queasy).

The Pru's powers of corporate digestion - and its management - will be seriously tested.

UPDATE, 08:57: I suppose anyone looking for a silver lining for UK companies in the credit crunch that wreaked so much havoc in the City would note that Barclays and now the Pru have taken advantage of others misfortunes to pursue empire-building ambitions.

The resonant and important question - as is always the case with big takeovers - is whether those imperial ambitions are for the benefit of shareholders, the owners, or of managers, the directors.

UPDATE, 11:18: Now that the details have been published, it's quite difficult to argue that the Pru is buying AIA at a fire sale price.

At a purchase price of $35.5bn, the Pru is paying 1.69 times "embedded value" (the conventional measure of life insurers' assets) and 25 times last year's operating profits after tax of $1.4bn.

That profit figure sounds very much like "profit with inconvenient bad bits taken out" - but we'll have to wait for more detailed audited figures to assess that.

And at 25 times, the Pru would initially be making a 4% return on shareholders' money - which isn't fabulous even in the low interest rate world.

But apparently this is what decent Asian insurers cost. And, as I've said, the Pru believes this is a once-in-a-generation (or longer) opportunity.

The Pru's owners, it shareholders, have a good few weeks to evaluate whether they agree, before deciding whether to stump up their share £13bn share of the purchase price in the jumbo rights issue.

That said, the Pru knows it has the money - because the rights issue has been underwritten (which means that other financial institutions will provide the necessary cash, if the Pru's shareholders balk).

The Pru will finance the rest of the deal by borrowing more than £3bn and issuing almost £7bn of new stock to AIG.

That will give AIG a stake in the Pru of almost 11%.

As and when AIG recovers, it'll be interesting to see whether that 11% is a symbol of a fruitful partnership or a Trojan horse.

Comments

  • Comment number 1.

    Robert the one thing that you do not mention that Im sure will be of interest to all is the degree of risk involved in this deal. The Pru have had a reputation as 'safe hands'. Will that stillbe the case or are they buying a big bundle of risk to boos short term profit?

  • Comment number 2.

    Wonder how Pru's managment will net the assets against the risks of something that a dead man (AIG) wants to sell (quickly).

  • Comment number 3.

    Never been a better time if you got the money!

    However it's an area with a flakey political history to say the least.

    But they are a big financial compny, they know what they're doing - what could possibly go wrong!

  • Comment number 4.

    No doubt the Pru will soon announce a plan to transfer a whole bunch of activities and jobs to the Far East.

    Think not what you can do for your country but what you can do for your bonus pot.

  • Comment number 5.

    High level strategy look great; just wonder what the devil in the detail is. Can understand AIG making the sale, not sure about the price though.

    The question is will the deal look as great when the cost of borrowing £20 billion is incuded.

    If the US government are happy to sell AIG Asia they would insist that no Banker bonus's are paid for this deal if they were serious about fixing th daft banking wages problem.

  • Comment number 6.

    Nice to see a British company taking a risk for once - good luck to them.

  • Comment number 7.

    There is possibly more to this than meets the eye. I suspect that part of the strategy behind this is to provide the Pru with a substantial far-east base such that they can then justify setting up their head-office there. That way they can then potentially avoid the punishing Solvency II implications on their vast annuity book.

  • Comment number 8.


    Good luck Pru just make sure your due diligence is 110%

    No refunds in the acquisition game .

  • Comment number 9.

    What is the point of this article? I cant see any insight except "The Pru is doing a large deal" yes we know we read the FT this morning

  • Comment number 10.

    A concern is that former investment bankers have infiltrated insurance companies perhaps and are changing the culture at the top. Given the scale of this event, maybe the public (UK & Asia & US) deserve to be given an insight into the people are who are making the decisions and to be reassured that it was initiated and backed by people who have worked at Pru & AIA in the life insurance industry for at least a decade. The intention is not to cause distress to any senior individuals, but to be reassured that the CEO, CFO, CRO (risk), Chairman have in-depth life insurance knowledge.

  • Comment number 11.


    > The resonant and important question - as is always the case with big
    > takeovers - is whether those imperial ambitions are for the
    > benefit of shareholders, the owners, or of managers, the directors.

    If it's bad for us (the voters and taxpayers), it's bad for Britain, whatever the effect on other shareholders or managers. And if it's good for us, I'm happy. But either way, we must always put our own interests first.

  • Comment number 12.

    Will the conglomerate be too big to fail! What is the business case advantage for Pru customers. Will the board be paying themselves much more in salaries and bonuses. Shareholders and customers - how will they guage the risks both short term and long term? Just how will they ensure due diligence in such a short space of time. Suspending share dealings suggests they fear a negative view of the deal?

  • Comment number 13.

    I suppose it's good for confidence in the country and the economy that a British company is acquiring (rather than being acquired).
    Like Jan said, I'd have faith in the 168-year-old company's staff to make good decisions.
    I'm sure HM Treasury's smile has met somewhere behind the back of it's metaphorical head at this news.

  • Comment number 14.

    Maybe they could finance it by promising outrageous returns then paying dividends from the new money they will be getting in with all the new policies?

    Oh hang on ........... that's been tried before (and it worked for a very long time).

  • Comment number 15.

    Very simple question:

    If the Pru goes belly up at some time in the future will the UK taxpayer be expected to bail it out (like the other international financial services companies based in the UK)?

    Globalisation is a two edged sword -in the up-swing we reap profits from foreigners, but on the down-swing we (the British Taxpayer) have to bail out the foreigners -see RBS etc etc.)

  • Comment number 16.



    As we cannot possibly know the interior details of this proposed deal there is little way of assessing if this is a good or bad adventure.

    With the RBS takeover of ABN-Amro all one could do was trust to the clever cloggs on the Board...ex Treasuryite included.... One's challenges were brushed aside.

    But now, two years on, general trust between shareholders and boards having been 'violently' savaged.... doubts of boards' efficacy are clearer to see. The Pru has to deal with such fear with greater caution.

    So Mr Peston if this were Rome : quidquid agas prudenter agas.

    Nothing changes much.


  • Comment number 17.

    A truly mega mega deal - what concerns me is the 'little' annuity customer dependent upon their monthly pension from the PRU - they've helped to finance this potential deal with their pension pot & I hope and trust that their retirement will not be put at serious risk.

  • Comment number 18.

    @GC London, #9
    What is the point of this article? I cant see any insight except
    "The Pru is doing a large deal" yes we know we read the FT this morning.


    Ummmm... for the 98% (substitute correct large percentage according to your research methodology) of the readers of this blog who don't read the FT? This blog is one of my sources of choice, so there is 100% of "point" for me.

    What pleases me is to see that if the deal goes through it will primarily be funded by equity, not by debt. Gearing is only good up to a point.

  • Comment number 19.

    Robert

    they had better buy it quick as the pound is sliding against all other currencies due to the polls showing the prospect of Labour being returned to power.

  • Comment number 20.

    "The sale has been approved by the US government"

    You bet it has.

  • Comment number 21.

    Maybe it is the way to go, buy up be big. Never really seems to work out does it? It could in this case if no one from the banks gets involved and goes for the quick buck.

    Good luck to them, have a go and all that.

  • Comment number 22.

    9. At 09:59am on 01 Mar 2010, GC London wrote:
    What is the point of this article? I cant see any insight except "The Pru is doing a large deal" yes we know we read the FT this morning
    ------------------------------------------
    This is not an article it is a blog. All that it is meant to do is start a discussion between the usual contributors that will then become political, doom-laden, irrelevant, pointless and interesting (in a random order) until by the time a new subject is started by RP the point of the original proposition has been totally lost.

    One comment on subject: They better be sure it is not an HBOS again.

  • Comment number 23.

    #17 whatme wrote:

    "A truly mega mega deal - what concerns me is the 'little' annuity customer dependent upon their monthly pension from the PRU - they've helped to finance this potential deal with their pension pot & I hope and trust that their retirement will not be put at serious risk."

    A very real risk in my opinion - who's going to underwrite the share placing on this one? - it's absolutely huge and the existing shareholders who take up the rights will be the same major institutions that bought major chuncks of bank shares.

    Disaster waiting to happen this - no wonder the US Government have endorsed it - they can't wait to dump the risks on someone else and who can blame them.

    Hence my previous comment on #14 - it's robbing Peter to pay Paul time again!

  • Comment number 24.

    Haven't we been here before? Lloyd's bank’s takeover of HBOS comes immediately to mind.

    Hope The Man from the Pru doesn't catch Asian Flu.

  • Comment number 25.

    Best of luck to the Pru with this.
    Let's hope they've got there facts right, and their sums right.
    Are UK savings plans at risk?
    Are UK endowment plans at risk?
    Are UK pension plans at risk?
    Just thoughts... but people are pretty "nervy" about major financial deals these days.

  • Comment number 26.

    I've just been told that the reason sterling is plummetting is because news is rife in the markets that sterling is about to lose its AAA status.

    I'm sure BBC will get the information soon........

  • Comment number 27.

    To Ian #23 - whilst both Pru and AIA are commonly thought of as being very high quality companies, I too was wondering who would provide $20bn of cash to buy newly created shares in the new company called New Prudential. Is seems as though this rights issue is fully underwritten by a few financial institutions such as HSBC. I would be interested to know the fees (presumably expressed as a percentage) for purely taking the risk of fully underwriting the issue (as apposed to any other fees.)

  • Comment number 28.

    The Pru are already big business in Asia - it's not as if this is a market they don't know. That being the fact, they should be aware of the going costs, expected returns (bith current and future) and risks associated with what they're buying.

    I was going to say they're "number 2 in Asia" - but some wag would pull me up, no doubt...

  • Comment number 29.

    #27 At 11:41am on 01 Mar 2010, Jean wrote:

    "Is seems as though this rights issue is fully underwritten by a few financial institutions such as HSBC".

    That's probably true because they generate such enormous fees. Want to guess how much?

    Well to give you an idea when Lloyds raised £14BN to get out of GAPS last year (and therefore stay majority privately owned) the fees to arrange the deal in the city were £500M!!

    I'll state it again - £500M and we own 43% so that's £215M straight out of our pockets into a city bankers bonus pot.

    Is it any wonder why the public are so mad about the continuing bonuses to bankers when this sort of thing is happening?

    I suggest we just setup a direct debit to the bankers themselves direct and avoid the middle man (government). If I'm going to be robbed blind I'd rather pay the organ grinder than the monkey.

  • Comment number 30.

    Dear Robert,

    I am in a Group Personal Pension at the Pru - how will this affect these types of pension plans? Is this good news for Pru customers? What happens if it all goes wrong?

  • Comment number 31.

    28. At 11:55am on 01 Mar 2010, Well_Red wrote:

    "I was going to say they're "number 2 in Asia" - but some wag would pull me up, no doubt..."

    Didn't know they had WAGS in Asia - can't go anywhere nowadays without being trampled by the designer handbags!!

  • Comment number 32.

    Well done to the Pru, looking to the future and to growth. Asia is the growth area for the future, India, China, etc. The UK and companies need to be investing there for the future. Only by growing into new markets can we make rapid progress paying down the current debt mountain. If all we do is cut and not invest we will make the debit more painful, loss more jobs and make it slower to pay it off.

  • Comment number 33.

    They will come back crying on the taxpayer's shoulder.

    32. At 12:40pm on 01 Mar 2010, lixxie wrote:
    Well done to the Pru, looking to the future and to growth. Asia is the growth area for the future, India, China, etc.
    ---------------------------

    Yes. Let's transfer what's left of UK's wealth to Asia. That's looking to the future and to growth ... not.

  • Comment number 34.

    At 2:42pm on 25 Feb 2010, EmKay wrote

    "WOTW - just remember, investments can go down as well as up.

    BUY RBS now!"

    ...luckily I do remember that - which is why I'm not sitting on a loss today. The price didn't rise enough to cover the in/out transaction costs - so unless you were betting millions - it's a shame....still you had better get used to it.

    At 2:36pm on 25 Feb 2010, onward-ho wrote:

    "However the markets back my hunch that RBS are a good bet....the share price at 38p is up 9p in 6 weeks, and is 3.8 times what it was at the start of 2009."

    ...and now it's not.

    At 3:27pm on 25 Feb 2010, U14354610 wrote:

    "On what basis? If you read the reports that have been published, RBS has exceeded the strategic plan it set for 2009 and has no need for more capital to prop it up. It expected to lose £5bn but lost £3.9bn and the core business (not the legacy problems) are good and making money. It will not be fully nationalised."

    ...not this week, no.

    At 3:36pm on 25 Feb 2010, Ian wrote:

    "Don't think it's quite as bad as that - RBS expect to be profitable from next year."

    ...the markets seem to disagree with that analysis.

    At 5:01pm on 25 Feb 2010, writingonthewall wrote:

    "See the 5% rise in the RBS share price today?

    That's speculators.

    We'll see how long it lasts for - all gone by the weekend maybe?"

    I hope nobody takes any of the 'market gamblers' seriously - it's very dangerous to do so.
    This bank will be nationalised eventually - there will be no taxpayer or shareholder profit


    BUY RBS, BUY RBS? - more like BYE BYE RBS, BYE BYE...

  • Comment number 35.

    "I've just been told that the reason sterling is plummetting is because news is rife in the markets that sterling is about to lose its AAA status."


    And who accords it that status? Why the same people that rated the 'toxic' debts as rock solid and caused the crisis in the first place. The rating agencies should give up rating and start paying.

  • Comment number 36.

    I'm revising for some business exams at the moment, and read in my notes yesterday that someone had done some research of big company mergers, and found that only 18% of them actually succeeded in creating shareholder value. I wonder if the folks at the Pru have heard of that research?

  • Comment number 37.

    No manager should be allowed to spend so much money that he or she is effectively, "Betting ", the company. This last happened when RBS acquired ABN Ambro and that ended in tears. Let's hope the Pru have sufficient funds for considerable downside to the deal - they're looking after my pension.

  • Comment number 38.

    The West abused the Asians for many years and look to return with their most sinister of institutions.....financial services. Pitty the poor Asians as they are about to be subjected a much more sophisticated brand of corruption...beyond the simple of money changing hands that has be their tradition.

  • Comment number 39.

    #33. At 1:12pm on 01 Mar 2010, plamski wrote:

    Depends on what jobs go to Asia - look at what's happened to us now we're reliant on the service sector for jobs. Short term it may benefit them but not on the long run.

    This is all part of the cycle - service jobs will inevitably go abroad as other economies develop.

    The problem is where does that leave us for the next 10 years? ................rather fubared I'm afraid!

  • Comment number 40.

    #32 lixxie:

    Am I understainding this correctly?

    The UK is massively over-exposed in the service sector as shown by the horrific problems the banking crisis has caused.

    So the solution is to invest in overseas service industries?

    Quite like the logic in that one - let's have Asia owning all the high tech manufacturing and added value companies in the UK and us owning the service sector in Asia.

    Would be very interesting to see who's wearing the trousers with that scenario wouldn't it?

  • Comment number 41.

    Maybe 1.69 times embedded value (similar to book value) is not completely unreasonable as prices go. A price-to-book ratio should be expected to be above 1.0 as future new business isn't included, and generally under 1.5 might be seen as a value stock. Didn't Kraft pay about 3.0 for Cadbury, so in that context this could be relatively good for Pru? Maybe this price could be viewed as fair, not too cheap not too expensive?

  • Comment number 42.

    32. At 12:40pm on 01 Mar 2010, lixxie wrote:

    "Well done to the Pru, looking to the future and to growth. Asia is the growth area for the future, India, China, etc. "

    ...yes well done Pru - despite the fact that these areas need a customer to replace the largest in the world (the US) in order to grow and that currently China is sitting on a pile of IOU's which the Fed. are printing in massive numbers with no value tied to it.

    Watch the gold price - gold values aren't changing, it's the value of the dollar which is - and we're tied to that relationship - so our falls against the dollar are magnified if you compare sterling to Au.

    This is why 'the east' is buying gold in bigger and bigger quantities - they're not looking for growth - they're looking for consolidation...

  • Comment number 43.

    What wories me the most about this deal is that the US govt will get an 11% stake in Pru.

  • Comment number 44.

    Pre-moderated posts are now taking about 90 minutes to clear. Will this record climb all day?

  • Comment number 45.

    36. At 1:39pm on 01 Mar 2010, DisgustedOfMitcham2 wrote:
    I'm revising for some business exams at the moment, and read in my notes yesterday that someone had done some research of big company mergers, and found that only 18% of them actually succeeded in creating shareholder value. I wonder if the folks at the Pru have heard of that research?
    -----------------------------------------

    If this is true then perhaps corporations should be putting their efforts into demergers as they must have better odds of success than 18%. I expect the investing institutions would encourage it.

  • Comment number 46.

    Just sounds like a global financial institution that is too big to fail. Now what did Fred the Shred and his mates do? Let me think....that's right, went on a buying spree

    Well, us westerners can't afford the insurance policies now, our pension pots have gone plop,
    "but never mind there are lots of people elsewhere on the planet who haven't yet realised insurance companies try to avoid paying out....."

    The mother of a crisis to pull the house down again will be, let me see, perhaps US heath care in maybe five or seven years struggling with the baby boomers, obesity and most people who can't afford the premiums, a few earthquakes in the east, perhaps some unusually heavy rains.

    A disaster movie coming near you soon.....

  • Comment number 47.

    Afternoon Robert,
    now let me see, AIG, in their recent US financial filing stated that they may need to borrow more money from the US Govt to remain as a "going concern". I think about £100 billion was mentioned. So this deal will get them £24 billion of the way to that?
    Prudential have decided not to return any spare cash to shareholders but to go on an expansion spree and buy a company which is bigger than their issued share capital.
    Shades of ABN Amro here methinks, but still so long as the company isn't too big to fail and must be bailed out by the taxpayer, I suppose they can do anything they like.
    With respect to suspension of shares, however, I think that is outrageous. Could it be that the large institutional investors don't like what they see here and want out at any price? Surely not!

  • Comment number 48.

    Gosh, they are being very brave with their Shareholders (Pension Funds) money !

    What happens if AIA turns into AI E IOU ?

    Gov't bailouts ? Or yet another greed fuelled catastrophe !

    Bonuses all around ! Slash the Public Sector, no bonuses there !

    Oh wait, I'm on the Public Sectors side aren't I?

    Just got caught up in the Monetarist Madness for a moment.

  • Comment number 49.

    Do you know it's taking 2 hours to get comment moderated and published today? Too much BBC partying over the weekend?

  • Comment number 50.

    Quite frankly, just what does Britain produce to sell abroad ?

    Wool, I suppose, just the sort being pulled over our eyes in the City daily.

    Fleece from the Public ! Best quality British Fleece ! Fleece the Public here !

  • Comment number 51.

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

  • Comment number 52.

    The problem with this sort of acquisition is that it takes a very long time to find out the degree of success of the takeover. Shareholders will hope that Pru has some very talented project managers because managing things on the inside will stretch capabilities to the limit.

  • Comment number 53.

    Companies that expand by acquisition are what they eat. That’s a thought-provoking phrase. I was busy digesting it until I got to:
    “The Prudential is attempting an even more radical reconstruction of what it is with its takeover of AIA, the Asian arm of the battered, US insurance giant, AIG.”
    Talk about gag. I gagged.
    The sale has been approved by the US government. Why am I not surprised.
    British insurer Prudential PLC will buy the Asian unit of American International Group Inc. in a deal worth $35.5B and this 35.5B will allow AIG to pay back some of the money it owes American taxpayers.
    (AIG, was rescued in a $182.5B bailout by the US government in September 2008.)
    The combined group will become the leading life insurer in Hong Kong, Singapore, Malaysia, Indonesia, Vietnam, Thailand and the Philippines, as well as the biggest foreign life insurer in China and India.
    But shares in Prudential PLC fell 11% on the London Stock Exchange following the announcement.
    Why?
    Barrie Cornes, analyst at Panmure Gordon: "Whilst in the longer term we can see the advantages of this audacious and opportunistic acquisition, on a 12 month view, we think that the shares will underperform."
    Dear oh dear, this is one way to get the derivative crap flowing into the Asian markets, which up to know have escaped relatively unscathed.
    Loomis confirms that the notional value of AIG’s derivatives exposure fell from $2.7T to $1.6T during 2008 due to some contracts maturing, and over $60B in credit default swaps cancelled by government action. That leaves by reckoning trillions in derivatives and billions in credit default swaps still be dealt with.
    According to Loomis’ report on CEO Edward Liddy’s testimony before Congress last month, the derivative book of AIG Financial Products may take another 4 years to completely wind down. The remaining exposure is extremely complicated and often based on underlying exposures that span decades. I ask again again: Why on earth would Prudential want anything to do with this boon-boggle?
    I can't wait for the Pru to value its shares, prior to disclosure of precisely what it is buying and how.
    Terrible, terrible move!


  • Comment number 54.

    As somebody in the "trade" as it were I believe the Pru are overpaying for what is a business that has some potential upsides and lots of potential down sides.

    To me there is a degree of Lloyds and HBOS about this. AIG lost another USD 10 billion in 2009 and the US taxpayer wants some money back ASAP. The Pru no doubt feel this is an offer too good to turn down.

    AIA is one of AIG's crown jewels but much of that was built up under the leadership and using the connections that Hank Greenberg had. The financial services industry operates under a myriad of limitations in South East Asia and the Pru's justification is no doubt based upon the growth potential in South East Asia and China and India in particular.

    Those with experience of either market will tell you it is extremely difficult to make money in both countries as the local governments will be very wary of allowing a foreign company too much free rein.

    I believe that the Pru has over paid and will never make the growth and profits that this hopeful bid is based upon.

  • Comment number 55.

    Be afraid.

    This is a deal cooked up by investment bankers.

    Now is the time to be boring ,not to plunge into the frenzied gambling pools of the Orient.

    I worry about my pension - that's all.

  • Comment number 56.

    £20bn at 1.69 times embedded value! The Pru at today's values is worth £15bn. So £8bn down the drain for the "goodwill" difference in embedded value gives you a doubtful asset of £35bn minus the £8bn to £27bn value of the new enlarged group and with the loss of 11% of shares going to AIA. I guess that will put the Pru's share value after the deal at around £2.60 a share. So what on earth will the Pru discount their shares to customers to raise £20bn? Maybe under £2.00 a share?

    I seriously think they would be better offering Asian customers great insurance deals and grow organically. Interesting to see if Aviva do that.

  • Comment number 57.

    "It will be financed by a rights issue of around that magnitude, which would probably be the biggest ever rights issue of new shares by a British company - and possibly one of the biggest ever rights issues by any company anywhere."

    In this climate??? ha ha ha ha he he he he he cough...splutter.....pah.

    Hands in yer pockets shareholders - it's time to fund another rich mans dream.

  • Comment number 58.

    Many years ago when the Pru were starting out into Asia, I believe the plan was for them to concentrate on that expanding market, they saw the UK etc as a declining Market. I believe that outsourcing etc all took place, all this does surely is to confirm that the Pru will soon pack up and move HQ East if all goes well. Cynic that I am I wonder if it will wait until it is succesful to do that, remaining here to be bailed out if it is not?

  • Comment number 59.

    Why do I get the feeling this might be another HBOS - Lloyds clanger?
    AIG selling its toxic debt or failure to penetrate the Asian market?
    If its such a good deal why is AIG selling it?
    Yet more evidence that the financial institutions and companies are slowly but surely pulling out of the UK.

  • Comment number 60.

    Don't yer just love it.
    The good old Prudential expands big time into the new economies of the east.
    In the year of the tiger.
    Takes balls.

    I just hope they are not going to be supplied by the UK taxpayers.

  • Comment number 61.

    Presumably the Primary risk is that AIG have sold lots of high risk policies, given events of recent years you would expect the Pru to have checked the proportion of "Toxic" policies. if they've done that then presumably at worst it's a good long term buy and at best a great one.
    Presumably the secondary risk is that if buy something bigger than yourself then its like the tail having to wag the dog at first.

  • Comment number 62.

    Good luck to the Pru.

    I can't help remembering that it was (supposedly) only Darling stepping in that stopped Barclays buying Lehman Brothers.

    QUOTE:
    Barclays and Lehman Brothers: it's a steal - Times Online
    [The Times, 17th Sept 2008]
    UNQUOTE

  • Comment number 63.

    It is also that the inhabitants save vastly more than we do here in the UK, even though their living standards on the whole remain much lower than ours. Where did you get that information from?

  • Comment number 64.

    One of the biggest share holders in the PRU is Legal and General (4.45%) . This would mean L&G having to invest alot of money to maintain this holdiing. What effect will this have of current holders of With profit policies within the PRU and L&G. What effect will this have on pensions within both companies. if the pound devalues will this not cost more.

    I am not an expert but these issues should concern the public as possible benefits in the future mean pain to the policy holders now!

  • Comment number 65.

    As long as the Pru has prudently done its due diligence, and the AIA full disclosure letter is clear and provable, then it could be a good move.

    It also gives the Pru a failsafe if the City of London turns into a pile of poo because of political indecisiveness and lack of leadership. We may yet see the Pru moving HO or having two HOs as other financial services companies are. It can weather the storm better if it has a foot in two different economic zones.

  • Comment number 66.

    Could the Pru possibly get it wrong and have to report a profit warning in 4-5 months time, commenting then perhaps, that the assets turned out to be much more toxic and risky than they had envisaged, (along the lines of HBOS, as some have already alluded to.)

    Would it be right to see the Pru takeover in terms of the ability of British management in general, (to handle such deals?)

    Obviously today the thinking is there's a risk, but it's manageable. If it does go wrong can we establish, at this point, what the valid excuses will be and what they will not be if all turns to worms? Reason I ask is, company bosses have a nasty habit of writing glowing tributes to their company's future prospects, (in the chairmans report) and six weeks later announcing a profits warning.

    (I'm currently looking in the direction of LLoyds, following Eric Daniels comments that he "confidently expects earnings momentum and profit performance to improve significantly in 2010 and beyond." Because Lloyds also revealed that there were a massive set of further potential losses on its books because borrowers "were struggling to repay their loans." In other words Accounting Standards seem to amount to no more than for a company chairman to put whatever gloss or spin on his company's results that he likes. What we're asking is, are people at the top frequently being gifted too wide a margin to get away with too much and not being held sufficiently accountable?)(Putting it mildly.)

  • Comment number 67.

    So, who is going to benefit from this deal?

    Senior management - undoubtably big bounses all round
    Big consulting companies - undoubtably big fees to be had
    Employees - how many job to go?
    Customers - Any benefit at all?

  • Comment number 68.

    As a shareholder the fear is not of toxic assets but simply that the price being paid is too high. There is always a danger that management get fixated on obtaining another rival company and feel this is a once only opportunity and are willing to pay silly prices to get them. Its nice to be the largest in your field but a companies main aim is to make profits.

  • Comment number 69.

    This will be a big deal however it turns out. The size of the sums involved will guarantee that and the Prudential will not be the same. I wish it well but am concerned at the risk and the price being paid.

    One further issue I have spotted highlighted on the notayesmanseconomics web blog which is the currency risk of this. The Prudential is raising pounds to pay in foreign currency and may have influenced the pounds fall yesterday..

  • Comment number 70.

    So, who is going to benefit from this deal?

    Senior management - undoubtably big bounses all round
    Big consulting companies - undoubtably big fees to be had
    Employees - how many job to go?
    Customers - Any benefit at all?

    ...and shareholders of course - my impression is that these 'mega-deals' destroy shareholder value not enhance it (although I am happy to be proved wrong on that!).

  • Comment number 71.

    Dear Robert

    Sorry I haven't looked in for a long time, only to find that, once again, you put your finger on more nails than anyone! At least you can tell your children and grandchildren that you've been blogging about it while things got worse and worse for voters, taxpayers, SMEs and others without passive income.

    But they got better and better for the financial industry, big companies and the central banks. For they stay while politicians "move on".

    Ultimately, it all seems like the grand ethical drama of "which side are you on", which the Robin Hood Tax poses. See https://robinhoodtax.org.uk

    However, some people in some institutions can have more devastating effects during their working life than others. See "Public Debts as the Root Cause of Unsustainable Economies" See https://bit.ly/9NBZsv

    As the "Forum for Stable Currencies", we'll be meeting next Tuesday in the House of Lords from 2 to 4, should you be able to drop by Committee Room 2A.

    With best wishes for more and more power to your incredible communication elbows,

    Sabine
    [Personal details removed by Moderator]

  • Comment number 72.

    Now we have learned that the taxpayer stands behind all "too big to fail" British financial institutions, should this sort of massive take-over be a decision for the Pru alone?

    If AIA turns out to be full of toxic assets or if the price being paid turns out to be so high the PR fails in the long-term, the rest of us could turn out to be paying the price.

    Good luck to the Pru, you've got some cojones, but I'm nervous about this deal.

  • Comment number 73.

    I used to work for a section of the Prudential, while I did they made a lot of people redundant over a 5 year period, then closed offices and moved them elsewhere, they amalgamated with M & G and again redundancies happened, then they moved again.

    All I can say is that the staff of the AIA had better be on their toes as I can see a lot of redundancies coming up for them. They buy, they change and they make cuts.

  • Comment number 74.

    tomb123 @ 13: "...I'd have faith in the 168-year-old company's staff to make good decisions..."

    Quite so; think "Equitable Life", and that company was much older. And thinking about it RBS & BoS were older still. Sadly age is no indicator of wisdom; the institutions may be old but their decision makers aren't.

  • Comment number 75.

    There's some risk in this, but not a great deal. The Asian market for insurance is growing fast and this acquisition is a bold step to become a major player and take out a major competitor at the same time. I just managed to buy some Pru shares at a great price before they're frozen. If they're willing to take the risk, so am I!

  • Comment number 76.

    If the Pru have got this wrong and the assets turn out to be much more toxic and risky than they had envisaged, the British taxpayer must walk away. Let the Pru fall, no more bail outs. No more "too big to fail" ever.

  • Comment number 77.

    I am rapidly coming to the conclusion that private sector companies should be allowed to fail and the shareholders take the hit regardless of who or what business sector they operate in.
    ALL THE BAIL OUT MONEY HAS NOT CURED THE PROBLEM ITS JUST DEFERED IT TO A LATER DAY, ITS BOUGHT THEM TIME.Debt is debt and consumers have basically stopped spending either because they have maxed out there credit or are choosing to clear down debt.So where does that leave banks and insurance companies?, they have pimped a good profit off everybody for years by selling us duff investments - endowment policies,life policies, robbed the company pensions, and the tell sid con buying something we already own as taxpayers was the ultimate magicians trick.
    A fool and his money is soon parted LOL!

  • Comment number 78.

    Selling any product into the Asian market particulalry if you are a western company like the Prudential is very diffecult. Speak to any company head and they will tell you that Asians prefer do business with there own local companies. Keeps money in there economy not whisked away to the west!
    May be AIG found that out they where struggling to penetrate the Asian market so they want to off load it and pay the US government back.
    Sort of kills two birds with one stone.
    Asian culture makes them very very prudent with cash, they save rather than spend! And thats why they are cash rich nobody likes borrowing money from the pimps (sorry the banks).Its how they manage money thats amazing they live within there means not beyound there means.

 

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