Pru told to list its Asian unit

PRUDENTIAL is facing calls to realise the value of its Asian business through a stockmarket listing after its $35.5bn (£25bn) play for AIA lay in tatters yesterday.

Chief executive Tidjane Thiam and chairman Harvey McGrath, who are fighting for their professional lives along with the rest of the board, will come under pressure to provide a “plan B” for growth in the region at the company’s annual meeting on Monday. Shareholders are demanding a clear strategy after Prudential’s vaulting effort to buy AIG’s pan-Asian network imploded amid doubts over AIA’s steep price tag.

Barrie Cornes, an independent analyst at Panmure Gordon, said Prudential’s Far Eastern unit would be worth £12.6bn – just short of the entire firm’s current market capitalisation of £14.6bn – on a 13 times new business multiple. “Although there was clear strategic logic for the acquisition, we suspect the way forward will be to list the Asian operation to realise its true value,” Cornes said. “This may be the one positive to have come out of this foray.”

Sources close to Prudential insisted it was premature to begin thinking about the future structure of the insurance group.

But several shareholders said they wanted to explore the option of raising capital by listing the Prudential Assurance Company. The head of equities at a well-known City institution said: “It would be good to get a market price for those assets. They [management] have pointed the company towards Asian growth and it would be good to see what plan B is.”

McGrath spent yesterday in a series of emergency discussions with major shareholders to gauge the extent of buy-side anger at management’s shambolic handling of the AIA transaction. He is expected to deliver a public “mea culpa” at next week’s meeting, although it is unlikely he will announce a strategic review.

● December 2009
Prudential boss Tidjane Thiam and AIG chief Robert Benmosche become serious in secret talks over a sale of AIA, the US insurer’s crown jewel.

● 1 March 2010
The London stockmarket is stunned by confirmation of a $35.5bn (£25bn) bid for AIA by Prudential. Press coverage of the “transformational” deal is initially strong.

● 8 March 2010
Things get off to a bad start when investors complain of 45-minute meetings to win their support for a $21bn cash call. Thiam has already angered some by saying he “earned the right” to do the deal.

● 18 March 2010
Thiam causes mayhem by accepting a board job at Société Générale only to turn it down 48 hours later.

● 4 May 2010
FSA concerns over surplus capital block the publication of Prudential’s prospectus, prompting another furious backlash from institutions over the “shambolic” process. Speculation swirls the deal will fall apart.

● 18 May 2010
The prospectus is finally published, but negative attention falls on the £850m fees to be showered on City advisers.

● 26 May 2010
Pressure grows on Prudential to cut AIA’s price or pull out. Hostile public statements by Standard Life and Neptune embarrass Prudential management.

● 29 May to 2 June 2010
After frantic weekend talks, AIG refuses to reduce the charge on AIA. Fearing humiliation at a public vote, Prudential says it will pull out at a cost of £450m.

Robin Geffen, Neptune
When the boutique fund manager started his campaign against the ambitious bid for AIA through a website he was dismissed by Prudential’s high command as a minor irritation. But as larger shareholders began to express their disquiet anonymously through the press, Geffen used an appearance on Radio 4’s Today programme to up his profile and rally support. Yesterday he was celebrating a “historic” victory for institutional investors over a FTSE 100 behemoth.

Mark Wilson, AIA
The youthful head of AIG’s Asian arm crystallised concerns over its impending takeover by Prudential when he told friends he would quit if the deal went ahead. Although rubbished by Prudential, the news added to a sense of unease at AIA after the high-profile departures of finance and legal chiefs Steve Roder and Peter Cashin. Wilson will have been among those AIA executives breathing a sigh of relief after Prudential’s bid fell apart.

Owen Thomas, Morgan Stanley Asia
As chief executive of Morgan Stanley’s Far Eastern operation, Owen Thomas will be eyeing the collapse of the AIA sale with interest. Bankers in Hong Kong are already speculating on a revived flotation of AIA after the summer, and Morgan Stanley is likely to be in the running as it was joint global coordinator of AIA’s planned initial public offering before it was interrupted. Deutsche Bank, UBS, Goldman Sachs, Merrill Lynch, Credit Suisse and Citi are also in the frame.

James Leigh Pemberton, Credit Suisse
After Prudential’s management, the raft of City advisers brought in to push through the deal will be the next most disappointed. Having been promised £850m in fees, bankers from Credit Suisse, led by James Leigh Pemberton, HSBC and JPMorgan had to settle for £300m. Also sharing the smaller haul are lawyers led by William Underhill of Slaughter & May. Prudential was heavily criticised for its spending on sell-side talent throughout the deal.

Robert Benmosche, AIG
When he announced the merger in March, Thiam said it was as much Robert Benmosche’s baby as his. The AIG chief executive is desperate to pay down the US government’s 83 per cent stake in the business and was keen to push through the sale, having aborted a planned flotation in Hong Kong. Benmosche appears to have become isolated on the AIG board, who voted 10 to 2 to block a price cut which would have helped Prudential win over its shareholders.

James Laing, Aberdeen
One of the few shareholders who publicly spoke in favour of the AIA transaction, James Laing of Aberdeen represents the fund managers who will be frustrated at their peers’ refusal to cooperate. Martin Brown of Ignis also openly urged investors to look past the quarter’s performance figures to the prospect of better long-term returns. Whether they will be proved right by a successful and highly valued AIA float remains to be seen.