A CLSA note obtained by City A.M. likened Prudential’s $35.5bn (£22.8bn) bid for AIG’s Asian business to “parents forcing their daughter to marry someone she doesn't like for money.”
The 11-page attack, penned by Patricia Cheng, slams Prudential’s “unrealistic” growth targets and suggests the insurer risks denting its ability to service debt and pay dividends.
The report, released earlier this month, also claims there is a clause in the deal that entitles AIG to a staggering $104m a month if the completion of the bid is delayed. Cheng says meeting the deadline of 31 August is largely out of Prudential’s hands as it relies on the regulatory approval of the 15 countries AIA operates in.
Cheng’s main concern with the merger focuses on problems of integration, which she says puts unfair risk on shareholders. She says conflicting IT systems and different working practices at the firms will make the integration – vital to achieve the ambitious cost savings drawn up – an “uphill battle”.
She also says the ambitious growth projections – doubling AIA’s new business value from $570m to $1bn in just two years – are “unrealistic”. She points out that 80 per cent of AIA’s total operating profit comes from Hong Kong, Thailand and Singapore, where markets have either a high level of penetration or fierce local competition.
It is understood Prudential was furious about the note and a source told City A.M. that the insurer has been privately critical of the research when talking to shareholders.
Prudential said: “We do not comment on individual pieces of research or market speculation.” CLSA said: “It is our media policy not to distribute company specific research reports.”
An industry source pointed out Cheng was previously working on the flotation of AIA that was planned before the Prudential bid materialised.
Other recent notes have been largely supportive of the bid.
CLSA Group, headquartered in Hong Kong, is a wholly owned subsidiary of Credit Lyonnais.
Barry Stowe, head of Prudential’s Asian operations, yesterday said the insurer is under no pressure from its shareholders to slash the $35.5bn price tag.