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June 2, 2010 Wednesday 10:47 AM EST
SECTION: NEWS & COMMENTARY
LENGTH: 627 words
HEADLINE: Prudential CEO vulnerable after failed AIG deal
BYLINE: Simon Kennedy, MarketWatch mailto:firstname.lastname@example.org.
Simon Kennedy is the City correspondent for MarketWatch in London.
LONDON (MarketWatch) — As Prudential Plc pulled the plug on its attempt to takeover American International Group’s Asian operations, attention turned Wednesday to how much damage the move may have caused — particularly whether the U.K. insurer’s CEO can survive the blow.
Late Tuesday, Prudential (PRU) (PUK) said that it will scrap its $35.5 billion bid for AIA Group Ltd., AIG’s Asian business, after the U.S. company (AIG) refused to renegotiate terms of the deal.
Prudential also said the failed move cost it a total of 450 million pounds in breakup fees and advisory costs — more than 3% of the group’s $14.6 billion market capitalization, or nearly the entire costs of its 2009 dividend payment.
David Buik, strategist at BGC Partners, said the deal has left CEO Tidjane Thiam looking vulnerable.
“I’d like him to stay as the transfer of emphasis of the Prudential’s business from the U.S. and U.K. to Asia was bold and imaginative — $35.5 billion was just too much in the current climate,” Buik said.
Thiam, who only took over the top job in October after having served some 18 months as chief financial officer, was the principal architect of the ill-fated AIA plan and also faced some personal criticism over his handling of the deal, including his quickly reversed plan to join the board of Societe Generale (GLE) .
One potential successor is M&G Investments CEO Michael McLintock, according to a Dow Jones Newswires report citing Robin Geffen, managing director of Neptune Investment Management. Other reports citing investors have suggested there could be more pressure on Chairman Harvey McGrath for not having identified the potential pitfalls of such a large deal.
Geffen is an investor in Prudential who led a campaign against the proposed AIG deal.
“The reputation of both CEO Thiam and Chairman McGrath has been seriously compromised. They misread the appetite of investors for a deal of this size,” said Tim Proudlove, an analyst at Daiwa Capital Markets.
Shares of Prudential dropped 2.9% Wednesday in London, following announcement of details of the costs it faces from the move.
The company has also been cited as a breakup target following the failure of the AIG deal.
In particular, insurance group Resolution Ltd. (RSL) has expressed interest in the group’s U.K. operations, having already snapped up rival Friends Provident.
Panmure Gordon analyst Barrie Cornes said Prudential could be worth 955 pence a share if it was broken up — compared to the 559 pence at which its shares traded Wednesday — though he added that group likely isn’t an immediate target for buyers given the state of the markets.
“We think that the company has a sound independent future as a stand-alone business and concur with comments concerning the growth levels in the Asian business,” Cornes said.
“Although there was clear strategic logic for the acquisition, we suspect that the way forward will be to list the Asian operation to realize its true value. This may be the one positive to have come out of this foray,” he added.
Daiwa Capital Markets’ Proudlove said he believes a bid for the entire group is unlikely because of its broad geographic spread and that a break-up is the most likely outcome in the medium term.
While an IPO of the Asian business would be the most likely outcome, both Ping An Insurance (2318) of China and Germany’s Allianz (ALV) could be interested in the division, he added.
Late Tuesday, Robert Benmosche, chief executive of AIG, said there are “several options” open to the company regarding its AIA unit. The company, 80% of which is owned by the U.S. government, has been looking to shed some businesses.
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