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Prudential prepares final charm offensive as deal D-day looms

TIDJANE Thiam must be trying hard to shut out the noise. As Prudential’s chief executive hunkers down to work on the prospectus for the insurer’s gargantuan $21bn (£13.8bn) cash call, grumblings from shareholders continue to fuel rumours of a break-up bid that would see the firm snatched from the brink of a historic deal and dismembered.

Ping An, the Chinese insurer, is the latest company to emerge as a potential bidder for part of the Pru. City sources say the Shenzhen-headquartered giant is keen to snap up the Pru’s Asian unit if its audacious $35.5bn takeover of AIG’s Far Eastern arm, AIA, falls through.

Ping An has been linked to the Pru before. It is cash-rich and run by Dominic Leung, a long-time former colleague of Thiam’s predecessor Mark Tucker. Whether or not it would make a move is uncertain, but its name adds to talk that a dissatisfied shareholder – Patrice Collette of Capital World – is trying to whip up interest in a break-up bid to stave off the Pru’s pounce on AIA.

“There more going on behind the scenes than people realise,” says Eamonn Flanagan of stockbroker Shore Capital. “A lot of people are preparing parachutes in case the deal doesn’t go through and the share price puts the Pru in play.”

Shareholders say the gossip reflects irritation at the amount of time investors have had to endure without pricing details on the rights issue or clearer numbers on AIA. Fund managers have so far been asked to back the move on the basis of “about seven numbers”, one insider says.

Next week, for better or worse, they will be put out of their misery.

At Prudential’s headquarters off Cannon Street, senior executives are preparing enough paperwork to fell a small rainforest. On 5 May, as the country braces itself for the general election, the Pru publishes the prospectus for its rights issue. It also prints its first quarter trading update, Hong Kong and Singapore listing details and further figures on AIA.

Another round of meetings with major investors will follow. Thiam is due to meet shareholders in London, Scotland, the US and Asia. The sessions are expected to be lengthy, presenting Thiam a last chance to win the 75 per cent backing he needs to vote through the AIA deal on 27 May.

Hedge fund Lansdowne Partners seems to reckon the transaction will go ahead. It increased its short position in the Pru for the third time to 1.11 per cent, or £151m, yesterday.

But some shareholders are not so sure. With Clive Cowdery’s Resolution and Aviva waiting in the wings, they have other ways of realising value should the merger collapse.

Thiam has lots of convincing to do

WHEN Tidjane Thiam unveils the prospectus for the AIA acquisition next week, he will have some convincing to do. Many investors remain wary of the massive deal. Chief on their list of concerns is whether AIA really looks like such a good catch when its numbers are converted to a European Embedded Value format. Only then can they be compared with forecasts for a standalone Prudential that didn’t snap up the Asian target.

And Thiam will have to provide some detail on when he expects the merger to become cash-flow positive.

BOTTOM LINE
Analysis by David Crow