ONE error – letting the news of the largest rights issue attempted in the UK so it can pay £23bn for the Asian business of American Insurance Group leak out before it could talk institutional investors around – could be considered careless.
A second – group chief executive Tidjane Thiam planning to join the board of French bank Societe Generale as a non-executive at the same time as leading a deal that would take at least six months to complete – was downright foolish. Thiam was forced to rescind the decision within 24 hours of the announcement.
A third – yesterday’s failure to release the eagerly awaited rights issue prospectus due to concerns from the Financial Services Authority on the fundamental point of whether or not the enlarged group would have enough capital in the right places to support its business – has coined a whole new term, Pru-lish, for the level of stupidity involved.
This third error is likely to prove unforgivable. The City watchdog is concerned, and Prudential, despite paying 38 advisers £750m in fees, has not managed to reassure it. It is buying a company bigger than itself and with money it doesn’t have. The way Prudential has handled the deal so far only highlights the incredibly high execution risk and that Pru will not manage this flawlessly. With 75 per cent shareholder approval now looking like a dim possibility Prudential will have to pay AIG an extra $104m a month if its acquisition of AIA is not completed by 31 August.
CLSA analyst Patricia Cheng advises Pru should “drop the deal if it isn’t 100 per cent confident it can get it done by 31 August.” This will incur a £153m break fee. Costly, but the smallest mistake of the whole debacle.