The Ambitions of Prudential's Tidjane ThiamSimon Evans
According to insiders at Prudential Plc (PUK), Tidjane Thiam, the chief executive of the insurer – which said last week that it was bidding $35.5bn (£23.6bn) to buy AIG's (AIG) Asian insurance business – is a firm believer in emotion over analysis.
The mantra for the former minister in the Ivory Coast government – currently the only black chief executive of a FTSE 100 company – is apparently: Analysis leads to paralysis while emotion gets things done.
The City and Thiam will find out over the next few months whether emotion will carry the giant deal, one of the biggest in UK corporate history, across the finish-line.
The deal has already stirred the emotions of the Square Mile. British fund managers are up in arms over the bid. One leading investment manager described "Pru's gamble" as "the most irresponsible and reckless act of any management in history. This is back-of-fag-packet stuff. Due diligence must be a dirty phrase at the Pru."
Others disagree. Bankers seeking a piece of up to $1bn in fees associated with the purchase and the $20bn rights issue needed to fund it – which will surpass HSBC's (HBC) cash call to become the biggest in London's history – have a rather different take on proceedings.
"It's brave, it's bold and it's the right thing to do," says one banker. "In the longer term, there can be absolutely no doubt that the demographics of Asia and its appetite for life-insurance will be much greater than the UK and other more mature markets. In the short term, though, investors in the Pru will have to take some pain."
That pain has already started. The firm's share price has tumbled by more than 20 per cent since the announcement of the deal on Monday. Voracious hedge funds have scooped a bundle short-selling the stock, and are sure to play the movements in the price over the coming weeks and months.
While the timing of the Pru deal has shocked many in the Square Mile, the tone of the purchase has not. The insurer, which first dipped its toe in Asian waters in India in 1923, has been one of the biggest players in the region since it expanded there in the 1990s. Profits generated from Prudential Asia are now greater than those made from selling products in Britain.
For its money – and many think the offer is much too generous – Prudential will get its hands on a giant brand with access to more than 14 fast-growing markets and hundreds of thousands of sales staff. The Man from the Pru may have long since disappeared in the UK but his counterpart is well established in Asia.
Buying the armada of salesmen, with their 20 million customers, is one thing, though integrating Pru's sales force with that of AIG's Asia unit, AIA – founded in Shanghai in 1919 by Cornelius Starr – will be challenging.
What lies beneath, in the bowels of the AIA business, is more difficult to appraise, and analysts have spent the past week trying to fathom it. Are there any bodies buried by AIG during the financial crisis that Prudential may dig up in the future? Pru had a look at AIA last year but walked away after balking at the asking price. That said, AIA is probably an altogether tidier organisation than it was a year ago. Plans for a listing in Hong Kong will have forced it to get its house in order.
Prudential is putting a great deal of store in the knowledge of Barry Stowe, its chief in the region, and a veteran of AIA. The slick American, whose Southern accent still lingers despite many years living in Hong Kong, should know the workings of the company he left in 2006 better than most. This is as much Stowe's deal as Thiam's, who has been with the Pru less than a year. Stowe took over the reins at Pru Asia from Mark Tucker, who went on to become the chief executive of the firm but who left in acrimonious circumstances last year – apparently because of a failure of the company's board to back his goals in Asia with a deal to buy AIA. What must he be thinking now?
With Pru's hopes in Asia rather than at home it seems a matter of time before its British rump is sold off. The activist investor Hermes Pension Management was so concerned about the growing differential in returns from the two regions in 2007 that it wrote to the then chief executive to demand the group be split into two. That never happened, and probably for the best. The UK business has pulled itself up off the canvas providing much needed cash to fund expansion in the higher-return markets of the Far East. The British business also provides much-needed regulatory capital held as a surplus in the firm's giant with-profits fund – useful in the capital-challenged world of the past few years.
Depending who you listen to, Prudential's management was locked in talks with Clive Cowdery, founder of Resolution (RSL:LN), the insurance consolidation vehicle, until as late as last Sunday. But Pru's management pulled back from a deal at the last minute. "Pru didn't want the UK issue to become a distraction or a side show with Clive – it surely would have," said one banker close to the talks.
While Resolution's aspirations have been thwarted, at least for now, Prudential is not certain to win the hand of AIA. The world's biggest insurance firms can be found in China, with the likes of China Life (LFC) and Ping An (PIAIF) looming large. Although China Life has ruled itself out of the reckoning for AIA, it could change its mind. The gentlemanly rules of the British Takeover Panel are not in evidence in China. Ping An has long been linked with a deal to buy Prudential, but a deal to buy AIA looks a bit too big for it to swallow.
The Pru's dwindling share price has led to speculation that a firm such as Aviva (AV) could swoop on the weakened insurer and scupper any deal. Many have drawn comparison with Nat West's attempted £10.5bn takeover of Legal & General (LGGNY) in 1999. The bank's share price slumped, leaving it vulnerable to an eventual £21bn takeover by Royal Bank of Scotland (RBS).
Andrew Moss, the chief executive of Aviva, who is bound by Takeover Panel niceties, wouldn't rule out a bid on Thursday, but it would seem unlikely. Moss indicated Aviva's preference for European rather than Asian expansion.
The other threat to the deal remains AIA's management and owner, the American government. Until Prudential's offer was announced, AIA was part of the way down the track to a public listing in Hong Kong. The firm's management in the region might not take kindly to Pru's offer.
The affable Thiam is in Asia conducting a series of "Town Hall" meetings with AIA staff in a charm offensive to win over wary employees and reassure them about job cuts. Next week he is in Britain to continue the offensive in the Square Mile.
While the hordes of banks that have won a piece of the underwriting pie are likely to give him a rapturous reception, not everyone will welcome him with open arms. "We will be making our voices heard," said one fund manager, who declined to be named. "There is plenty of time for this to crumble in front of Tidjane's eyes."
Hard analysis rather than emotion is likely to decide how rocky a road Thiam will face in the coming weeks.
Barry Stowe – slick, tough, and invaluable
Tidjane Thiam has grabbed the headlines for his audacious swoop on $35bn worth of AIG's Asian assets. But it's Barry Stowe, the chief executive of the Pru's Asian business, who will have to put in the hard yards in the coming weeks.
The 51-year-old Nashville native, who holds a politics and classical studies degree, joined Prudential in November 2006. He cut his teeth at Willis Corroon (WSH), a US insurance broker, where he spent more than a decade, leaving in 1992 to take over as chief executive of Nisus, a subsidiary of Pan-American Life, at 37. He joined AIG in 1995, working various roles at the group, including head of Accident & Health Worldwide, based in Hong Kong. But the top job in the area eluded him.
Stowe took over the reins in Asia from Mark Tucker, who launched Prudential Corporation Asia (PCA) in 1994. It was never going to be easy, but smooth-talking Stowe is perceived to have done well in his time at PCA.
The Pru's early move into India, which could get even more lucrative if foreign ownership rules are relaxed, has been well-executed, while the sale of the ailing Taiwanese operation was well-received.
Under the smart exterior, Stowe has a tough-nut reputation. "He doesn't suffer fools gladly," says a former Pru insider. But Stowe's Southern charm was in evidence last week when he helped Thiam on his regional tour. As one insider says: "He certainly is slick."