Prudential Seeks to Win Investor Backing for AIA Bid After Overcoming FSA
Prudential Plc Chief Executive Officer Tidjane Thiam took 11 weeks to convince the U.K. regulator to authorize its $35.5 billion takeover of American International Group Inc.’s main Asian unit. He now has three weeks to convince his investors.
Thiam and his management team will start a fresh round of investor meetings today as they seek to gain the 75 percent of shareholder support needed to push through the $21 billion rights offer that will fund the takeover of AIA Group Ltd. in the biggest purchase in Prudential’s 162-year history.
Prudential yesterday sought to win over investors by promising to double Asian profits within three years and extract $1 billion from AIA within that period for dividends and investment in growth. The company published the targets along with details of its rights offer 12 days after the Financial Services Authority blocked the document on concern over the insurer’s capital reserves after the takeover.
“I’m sure Tidjane and the management will get a hard time from some investors, but armed with the information released today they will be able to make up for some of the missteps of the last few weeks,” said Martin Brown, a Glasgow-based fund manager at Ignis Asset Management Ltd., a top 30 Prudential shareholder. “The targets and disclosures are reassuring and broadly positive.”
Investors are scheduled to meet to vote on the rights offer on June 7. The company published its prospectus for the deal on its website and issued listing documents for Hong Kong today. Prudential will pay 850 million pounds ($1.2 billion) in fees to the banks underwriting the offering.
Prudential declined for the fourth day, dropping 4.5 pence, or 0.8 percent, to 530 pence in London trading, valuing the company at 13.4 billion pounds.
Thiam, 47, yesterday said the value of AIA will probably rise to $60 billion, 80 percent more than its sale price, within three years. Prudential also revised up its cost savings and revenue estimates from when it announced the deal in March.
To meet the FSA’s requirements, Prudential was forced to sell $5.4 billion of hybrid capital and set up a $1 billion reserve fund. The regulator was concerned that reserves could get trapped in markets such as Hong Kong in the event of a collapse in stock or bond prices, Thiam said.
Hybrid capital, which combines elements of debt and equity, is more expensive to sell to investors than the $5 billion of senior debt the insurer had planned to issue because it acts as a bigger buffer against losses.
Timing ‘Not Ideal’
“There is still a risk the deal does not proceed,” said Jonathan Jackson, head of equities at Killik & Co., which has 2.1 billion pounds under management, including Prudential shares. “The timing of the fundraising is not ideal given the market’s current nervousness over sovereign debt issues.”
The delay also cost Thiam some goodwill from investors who welcomed the Ivory Coast-born Frenchman’s promotion from finance director seven months ago.
Shareholders including Neptune Investment Management Ltd., which owns about 50 million pounds of Prudential stock, have criticized his handling of the deal. Managing director Robin Geffen said he is trying to rally fellow shareholders to oppose the takeover.
“They will have quite a lot of trouble raising that cash,” David Cumming, head of U.K. equities at Standard Life Plc, said in an interview with British Broadcasting Corp. yesterday. “We and other shareholders believe the price is too high and the financial case for the deal hasn’t been particularly well articulated.” Standard Life owns Prudential shares.
Thiam went on a series of investor meetings after announcing the agreement with New York-based AIG on March 1. He apologized yesterday for cutting some of the meetings to 45 minutes, when conventionally they have been an hour long.
“We have apologized profusely and I apologize again,” he said. “I know that investor meetings don’t last 45 minutes.”
The insurer was unable to provide investors with more than a summary of AIA accounts until yesterday because of legal restrictions surrounding the rights offering.
“There was a real sense of frustration because we wanted to say something but we were restrained,” Chairman Harvey McGrath said. “That did give rise to some frustrations” among shareholders, he said.
“This is something of a leap in the dark for the Pru,” said Paul Mumford, who helps manage 417 million pounds, including Prudential shares, at Cavendish Asset Management Ltd. in London. “This is not about business diversification; this is a case of putting an awful lot of eggs into a Far Eastern basket.”