PRUDENTIAL AND AIA EXPLAINED
Q. WHY SHOULD PRUDENTIAL WITHDRAW NOW?
A. Prudential – after suffering its first major setback with an unprecedented regulatory delay to the deal last month – was already facing growing shareholder discontent. A withdrawal today, after Prudential management meets top investors, would avoid taking the deal to a vote at a general meeting scheduled for 7 June. Prudential would need 75 per cent of voting stock in favour to push ahead, and it was increasingly unclear it would have gathered that support.
Q. IS THERE A CHANCE THE FIRM COULD PRESS AHEAD?
A. The alternative option for Prudential management is to push ahead with plan A – the takeover offer for AIA and an audacious plan to become Asia’s biggest foreign-owned insurer. This is widely seen as implausible. AIG’s management is unlikely to return to the negotiating table and accept even a face-saving discount for Prudential, after the earlier statement sticking to the original terms. And Prudential has little motivation to take the $35.5bn offer to shareholders next week and face what would likely be an unprecedented defeat.
Q. HOW IS PRUDENTIAL’S UNDERLYING BUSINESS?
A. Prudential, faced with volatile markets and ruffled shareholders, will most likely return to its previous, independent strategy, emphasising to investors high levels of growth seen in first-quarter results, when sales rose 26 per cent to a record £807m.
Q. WHAT ARE THE ODDS ON A BREAK-UP BID?
A. Talk of breaking up Prudential into its US, UK and Asian arms has been in the market for several years. But with several major rivals dealt body blows by the credit crunch – not least AIG – this scenario is now seen as unlikely. Analysts emphasise hedge funds and some banks will continue to pursue this option. But hostile bids this complex -reminiscent of the three-way takeover of ABN Amro – are virtually unheard of in insurance.