Prudential Plc’s Tidjane Thiam tried and failed to expand in Asia by buying AIA Group Ltd., his first test as chief executive officer. To succeed now, he will have to beat AIA’s new CEO and his ex-boss, Mark Tucker.
This week, Thiam’s former mentor starts gauging investor appetite for an initial public offering of AIA, which at about $15 billion would be one of Hong Kong’s largest. AIA’s IPO marks the beginning of a race that will pit Thiam and Tucker, one-time colleagues, in a contest for the world’s fastest growing insurance market.
“It’s a case of eat or be eaten,” said Christopher Wong, a fund manager at Aberdeen Asset Management Plc in Singapore, which oversees $267 billion of assets including Prudential shares. “The growing sophistication of Asian consumers in terms of wealth management and family protection is a direct benefit to life insurers in Asia. It’s going to be a new battleground for growth.”
Prudential and AIA are the two biggest international insurers in Asia and the only two with branches across the continent. For Thiam, success in Asia will help appease investors who called for him to quit after his $35.5 billion bid for AIA collapsed, costing 284 million pounds ($450 million) in fees. For Tucker, AIA’s IPO will give him independence from American International Group Inc., whose government bailout hurt sales in 2009. Prudential may be a future takeover target for AIA, analysts say.
Thiam, 48, inherited an insurer that gets 42 percent of its sales in Asia from Tucker, 52, who was Prudential’s CEO from 2005 to 2009. Thiam plans to raise sales of health insurance and products with shorter payback periods in fast-growing economies such as Vietnam and Indonesia, he said earlier this year.
Tucker, picked to head AIA in July by AIG CEO Robert Benmosche, plans to raise between $10 billion and $15 billion in selling part of the company next month, two people with knowledge of the matter said Sept. 22. The whole of AIA is worth as much as $38.9 billion Bank of America Corp.’s Merrill Lynch & Co. unit said yesterday. The proceeds of the share sale will go toward paying for AIG’s $182.3 billion government bailout.
“We’ve been competing for a long time,” Thiam said in an interview with Bloomberg News on Aug. 12. “It’s well recognized they are in need of a turnaround. We’ve taken them over in growth, profitability and in margins. That momentum is real.”
Thiam declined to give a forecast for sales growth in Asia, saying that expansion depends on factors he can’t control such as economic growth. “We will do better than the competition,” he said. “That we can control.”
Tucker Hired Thiam
Patricia Chua, a Hong Kong-based spokeswoman for AIA, declined to comment, citing restrictions related to the IPO. Tucker declined to comment. An AIG spokesman in New York, Mark Herr, also declined to comment.
Tucker plucked Thiam from rival U.K. insurer Aviva Plc in 2008, giving the Ivory Coast-born French national his first job on the board of a publicly traded company. British-born Tucker, who was a professional soccer player in his youth and came to work three years ago the day after breaking his nose in a scuffle during an amateur match, left Prudential in 2009, handing the top job to his protege. After announcing his departure, Tucker said there was “one more big job in me.”
He spent a decade as CEO of Prudential’s Asian division, expanding into 14 countries and increasing profits to 415 million pounds in 2003 from 4 million pounds in 1993. As CEO, Tucker increased revenue 17 percent to 48.1 billion pounds in the four years to 2009.
“I have a fantastic successor in Tidjane Thiam, who has immense ability and will do a wonderful job,” Tucker said in an interview with Bloomberg Television as he stepped down.
Thiam, a graduate of the Ecole Polytechnique in Paris, began his career in 1986 at McKinsey & Co., the management consultant. In the 1990s, he took five years out to work in the Ivory Coast’s government before it was deposed in a military coup in 1999. He escaped unhurt.
Thiam returned to McKinsey and in 2002 joined Aviva as director of strategy, where he helped then-CEO Richard Harvey make a 16.9 billion-pound bid for Prudential, the firm he now leads. The 2006 offer was rejected by Tucker, who hired Thiam at Prudential two years later.
After investors balked at his record bid for AIA, Thiam now plans to follow Tucker’s strategy of organic growth in Asia.
“We expect growth in Asia to be very significant and certainly ahead of other parts of the world,” he said in an interview. He “ruled out” another bid for AIA.
Prudential’s “management is under increased pressure to deliver higher returns after the deal’s failure, either by driving the business harder or looking at the returns from a breakup,” said Martin Brown, who helps manage 69 billion pounds at Ignis Asset Management Ltd. in Glasgow. Ignis is one of Prudential’s biggest 30 shareholders.
Revenue at the London-based Prudential’s Asia division climbed 30 percent to 359 million pounds in the first quarter of this year compared with a 16 percent rise to $455 million at AIA. Prudential’s profit margins are also wider. Both compete with firms such as China Life Insurance Co., Ping An Insurance (Group) Co. and Axa Asia Pacific Holdings Ltd. in Asia.
While Prudential has accelerated sales in the region since 2008, AIA has been hurt by the government bailout of its parent, AIG. AIA’s sales declined 5 percent to $11.6 billion in 2009 as AIG’s rescue deterred potential customers.
Tucker’s New Team
Since Tucker arrived at AIA earlier this year, he has appointed a number of former Prudential colleagues. Bill Lisle will become AIA’s chief distribution officer and Ng Keng Hooi joins next month as managing director for Thailand, Philippines, India and Taiwan. Both worked under Tucker during his 10-year tenure as Prudential’s Asia CEO.
“Prudential’s agents in Asia are currently much more productive than AIA’s, but I expect AIA to narrow the gap pretty quickly,” Brown said.
A successful IPO may allow AIA to gain ground on Prudential, according to Simon Drimer, Singapore-based managing director of Pi Financial Services Intelligence, research consultant specializing in Asian life insurance.
“2009 was a one-off,” he said. “The AIA agency force is equal to, if not higher quality in some markets, than the Pru agency forces.”
Selling insurance in Asia at present is comparable to selling mobile phones in the 1980s, Thiam said in May when canvassing for investors to support the AIA bid. The number of sales agents on the ground rather than competitive pricing from rivals is the main limitation on growth in Asia, he said.
Competition for Agents
“Competition for customers and premiums isn’t as competitive as one might think,” said Kenneth Lowe, who helps manage 15.7 billion pounds including Prudential shares at Martin Currie Investment Management Ltd. in Edinburgh. “Where competition will come in is in the agency force. We have seen a large bidding up of good quality agents.”
Prudential had about 410,000 sales agents in Asia at the end of 2009 compared with about 320,000 at AIA. The two insurers have competing divisions in Hong Kong, South Korea, Singapore and Malaysia. AIA has more agents in Thailand and the Philippines while Prudential is bigger in Vietnam and Indonesia.
“People are always crawling all over our team,” Barry Stowe, CEO of Prudential’s Asian division, said at the company’s half-year results last month. “We’ve not lost any senior people to a competitor. It’s something we certainly take seriously.”
Markets such as Hong Kong and Singapore are the most competitive, with the insurers typically offering so-called handshake fees of as much as $400,000 spread over three years to new recruits, Pi’s Drimer said.
Failing to beat AIA may “increase the pressure or serve to be the catalyst for a takeover,” said Jonathan Newman, an analyst at Brewin Dolphin Holdings Plc in London, which manages
21.6 billion pounds including Prudential shares. “People are not going to value the Asian bit of the Pru appropriately as long as it’s attached to the U.S. and the U.K.”
Prudential’s stock climbed 22 pence, or 3.6 percent to
637.5 pence, in London trading, the biggest rise in six weeks. The shares have increased 11 percent since its bid for AIA collapsed June 1, compared with a gain of 15.1 percent for the FTSE ASX life insurance index.
Tucker mulled a bid for AIA when he was CEO of Prudential in 2008 and backed off, citing the complexity and expense of a deal, he told reporters in a March 2009 conference call.
An IPO valuing AIA at about the Prudential’s revised offer of $30.4 billion would give Tucker a platform to make a takeover bid for his former employer in the future, said Barrie Cornes, a London-based analyst at Panmure Gordon & Co. with a “buy” rating on Prudential. “It remains a possibility that at some point in time Tucker would go down that route,” he said.
That’s not a possibility concerning Thiam. “I love Mark and respect him, but we’re not going to give airtime to the competition,” he said. “We can’t become obsessed with AIA. We don’t see it as a threat.”