Pru in urgent push to seal AIA takeover

HARVEY MCGRATH, Prudential’s experienced chairman, describes the group’s intention to buy the largest pan-Asian insurer for tens of billions of dollars as a “shock and awe” deal.

London was indeed stunned when it awoke to weekend reports of a $35.5bn (£24bn) swoop on AIA.

But since then it is Prudential’s management that has looked shellshocked, stumbling from mistake to mistake in the run-up to the wallet-busting cash call. When the City watchdog blocked its prospectus at the 11th hour nearly two weeks ago, many said the game was up.

Yesterday chief executive Tidjane Thiam struck a brighter tone. Released from purdah after finally publishing the terms of Prudential’s capital raising, Thiam used his first public appearance in months to argue the case for Prudential’s pursuit of AIG’s Far Eastern prize.

Thiam told analysts hastily summoned to the offices of house broker Goldman Sachs that the merged group would add $30m per year to its $340m cost-savings target. Post-AIA, Prudential also aims to enhance revenues by $100m extra to $800m and promises to double new business profits to £2.8bn by 2013. Hard lucre will be available in the form of a $1m annual dividend by next year.

Shareholders seem slightly happier. One large investor who was frustrated at management’s amateurish clash with the Financial Services Authority 13 days ago told City A.M. he would take up his rights.

“It’s more of a certainty now that the deal will go through,” he said. “What’s key is that the management team makes sure the [shareholder] vote at the AGM goes smoothly.”

Another significant investor said: “It’s still far from a done deal, and I’m not saying people are going to snap it up, but if I were a betting man I’d say they will get it away.”

Thiam, who needs the backing of 75 per cent of investors for the fundraising in early June, was penitent at a media roundtable later that day. “We have to approach the deal with humility,” he said.

Thiam refused to say whether he would leave should the merger fall apart, but tried to outline his vision for the future. Discussions are advanced to sell off AIA’s stakes in its Indian and Chinese joint ventures. Prudential’s UK operation is “not sacred” and could well be offloaded, as could the US. Thiam explicitly envisages Prudential as a play on Asia’s rampant growth rate.

Of course, not everything is back on track. The Prudential’s long-awaited prospectus was not published until late last night. Investors are irritated at the multi-million pound extra fees the company is paying its advisers for rearranging its capital position to please the FSA. Shareholders who do not take up their rights are in line for serious dilution. Prudential has three weeks to woo its owners. Thiam, McGrath and a handful of senior staff are meeting London-based and Scottish institutions this week before flying to the US and Asia. They still face an uphill struggle. But bullishness on the AIA tie-up may yet win the day.