Pru investors warm up to Asian venture

INVESTORS in Prudential said the insurer’s rising share price had given them more confidence in its mammoth takeover plan for American International Assurance yesterday.

Shares in Prudential have recovered 16.5 per cent since plunging in the aftermath of its announcement of the $35.5bn (£23.3bn) deal.

After tumbling below the 480p mark in early March as investors fretted over the $20bn rights issue scheduled to part-fund the acquisition, its paper has climbed to around 562.5p.

Several shareholders told City A.M. the stock’s resurgence helped ease fears over the jumbo capital raising and the buyout of AIA, American International Group’s Asian limb.

Martin Brown of Ignis Asset Management, which owns a major stake of the Pru, said: “It’s amazing how a share price can change people’s view of a deal. Much of the concern to begin with was driven by the drop in the share price. Given that it’s recovered quite a lot, some of that concern has gone away.”

Another large investor, who asked to remain anonymous, said: “It makes me feel better about [the transaction], but there’s still a lot of work to do.”

Not all shareholders are comfortable, however. John Smith of Brown Shipley, which has a smaller holding in Prudential, said he wanted clearer assurance the Holborn-based blue chip would not cut its dividend.

He said: “We are still in that in-between phase where we accept the logic on a two-to-three year view, but how much do shareholders have to pay in the short term?”

The firm, which went ex-dividend on Wednesday, distributed 19.85p per share to its investors for 2009.

Sources close to Prudential said the combined group would generate strong earnings and suggested a dividend cut was unlikely. Details are expected to be set out in the rights issue prospectus, due on 29 April.

Separately, sources played down a report suggesting Prudential was in early stage talks with China Life over a tie-up for AIA in China.