The emerging consensus among financial analysts sees AIG as the winner in its contest with Prudential (U.K.) for American General. Ironically Pru shares closed up 6.9 percent at around $43 per share, while AIG dropped 4.2 percent to close at $76.84 on Wednesday – an admirable demonstration of the seesaw affect in bidding contests; whoever appears to be winning sees their stock price fall, while the loser gains.
While the news made Pru’s bid more valuable, it still isn’t equivalent to AIG’s $46 a share, and, as the increase was due to speculation that it would lose out to AIG in the bidding for Am Gen, it would certainly decline in value, if its chances improved.
AIG’s chances were also bolstered by the general opinion that it can be expected to create greater synergies with Am Gen, than Pru could. The acquisition would give AIG a very strong position in the U.S. life market, just as that sector is expected to grow in response to the imminent retirement of the “baby-boomer” generation over the next 15 years.
Similarly, AIG has indicated that it could achieve greater cost savings, up to $200 million, from the fusion than Pru could. It would also leave Am Gen management largely in place, as AIG CEO Maurice Greenberg has often stressed the importance of independent management for AIG subsidiaries.
Finally, Greenberg indicated that his interest in Am Gen goes back at least six months, and that there was apparently a failure to communicate between himself and CEO Robert Devlin. He also indicated that he had taken into account the $600 million breakup fee Am Gen will owe Pru if it concludes a deal with AIG.