Prudential’s Thiam Faces Showdown Meetings With Investors

Tidjane Thiam, chief executive officer of Prudential Plc
Tidjane Thiam, chief executive officer of Prudential Plc, spent three months failing to persuade investors to pay $35.5 billion for the AIA Group Ltd. Photographer: Chris Ratcliffe/Bloomberg

Prudential Plc Chief Executive Officer Tidjane Thiam spent three months failing to persuade investors to pay $35.5 billion for AIA Group Ltd. Now he has to convince them that he should keep his job.

Thiam, 47, dropped his attempt to win shareholder support for the company’s biggest takeover yesterday and agreed to pay a 152.6 million-pound ($223 million) breakup fee to American International Group Inc. Prudential Chairman Harvey McGrath, 58, is leading discussions with shareholders about the company’s and the management’s future, according to two people with knowledge of the matter. Thiam plans to remain as CEO, the people said.

“This deal has not been handled well in terms of the problems with the regulator and the price,” said Robert Talbut, chief investment officer at Royal London Asset Management Ltd., which manages about $52 billion and is a Prudential shareholder. “We would like to have a meeting with management to better understand how the company got themselves into that predicament.”

Thiam will publicly meet shareholders for the first time since the deal’s collapse at the firm’s annual general meeting in London on June 7. He is facing criticism from investors for failing to consult with shareholders before making its record bid for AIG’s main Asian unit and then having a rights offer delayed almost two weeks by the U.K. regulator.

‘New Leadership’

There must be “new leadership” with “a clear strategy to stimulate the share price,” said Guy de Blonay, who helps manage 21.1 billion pounds at Jupiter Asset Management Ltd. in London. “The inability to put the deal through has shown some weakness. There’s clearly a capability issue emerging.”

Thiam became CEO eight months ago after spending 18 months at the insurer as finance director. He has worked at London-based Aviva Plc, where he helped orchestrate a 16.9 billion- pound bid for his current employer. The offer was rejected and abandoned by Aviva CEO Richard Harvey within a week.

“Tidjane remains our chief executive -- there is no change,” Prudential spokesman Robin Tozer said in a telephone interview yesterday. “Our management is speaking to shareholders all the time about a variety of issues.”

It isn’t the first time a failed takeover has placed pressure on a Prudential CEO. The insurer was outbid by AIG in 2001 for American General Corp. in an attempt to become the biggest seller of annuities in the U.S. The failure contributed to the ouster of Prudential CEO Jonathan Bloomer in 2005.

Dividend Strategy

Thiam has his supporters. Shareholders “agreed with the strategy of the deal, but not on the price,” said Paul Morgan, a fund manager at Barings Investment Services Ltd. in London, which has $44 billion under management. “This shouldn’t be the endgame for him.”

Rival U.K. insurers Aviva and Legal & General Group Plc have been generating more cash to fund dividend payments to shareholders in the past six months. To regain investor confidence, Thiam needs to adopt a similar low-risk strategy, Morgan said. “The company needs to get back to basics.”

Thiam could be replaced by fellow executives including Clark Manning, CEO of Prudential’s U.S. division, or Michael McLintock, head of the insurer’s fund unit, M&G Investment Management Ltd., said Marcus Barnard, a London-based analyst at Oriel Securities Ltd.

Thiam, along with McGrath and Prudential’s Asia CEO Barry Stowe, were “pretty committed” to the AIA takeover, said Barnard, who has a “sell” rating on the stock. “It’s not clear whether the three people want to stay on or whether they have the mandate to run the business from shareholders.”

Mark Tucker

Former CEO Mark Tucker may replace Thiam on a temporary basis should he leave, the London-based Times reported today, without saying where it got the information. McLintock, 49, and Tucker, 52, couldn’t immediately be reached for comment. Manning, 51, declined to comment.

One shareholder calling for an immediate change of management is Robin Geffen, founder and chief investment officer of Neptune Investment Management Ltd. in London. Geffen announced May 27 he had garnered 20 percent of investors to oppose the takeover. Prudential said it was asking AIG to lower the price a day later.

“They really have shown complete contempt for shareholders,” he said. “It’s never good to leave the lunatics in charge of the asylum. Their positions are completely untenable.”

Prudential Breakup

McLintock, who has run M&G since before it was bought by Prudential in 1999, should “take over as soon as possible,” Geffen said. Half of Prudential’s largest 10 investors supported his attempts to stop the takeover, he said, declining to identify particular shareholders.

Prudential may be a takeover target itself or face pressure to break up the group, according to Jonathan Newman, an analyst at Brewin Dolphin Holdings Plc in London. The insurer has three separate divisions spread over the U.K., U.S. and Asia.

“This is a pot of three businesses that don’t have to stay together, therefore, a break up should be on the cards at some point,” Newman said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE