Prudential (U.K.) To Buy American General For $26.5 Billion

March 12, 2001

In the biggest insurance industry merger ever, Prudential Plc, Britain’s largest life insurer, has agreed on merger plans with Houston-based American General Corp. The combination would create the world’s sixth largest insurance group with combined capital of over $45 billion, and assets under management of $336 billion.

While it has a dominant position in the U.K., and a strong presence in Asia, “The Pru,” – which has no connection with the American Company of the same name – has had trouble becoming a viable player in the U.S. life and asset management market.

That will change. American General, the 2nd largest publicly traded life insurer in the U.S. with $120 billion in assets employs 16,000 people, providing life insurance, pension products, consumer loans and investment management services to some 12 million customers from its headquarters in Houston.

AG’s highly respected management team headed by CEO Robert M. Devlin has overseen diversification efforts, which have confirmed its leadership position in both life insurance and financial management.

Plans call for AG shareholders to receive 3.6622 Prudential shares for each AG shares, which values the deal at $26.5 billion. While billed as a “merger of equals,” the eventual ratio of the combined companies would be 50.5 percent Pru to 49.5 percent AG.

Pru’s Group Chief Executive Jonathan Bloomer will head the combined group from it’s London offices. Devlin will join Pru’s Board of Directors as Deputy Chairman and CEO of North American Operations with headquarters in New York, and an operational center in Houston.

Pru joins other major European insurers, most recently Holland’s ING and Aegon, in making a major U.S. alliance. With the world’s strongest economy, and a huge potential customer base, it’s seen as increasingly vital for global insurers to have a major U.S. presence. Pru’s U.S. subsidiary, Jackson National Life, is currently the 20th largest U.S. life insurer, and was too small to achieve the market share and economies of scale necessary to compete in the American Market.

Bloomer stressed the two companies similarities, saying, “Our two companies are a great fit. We have highly complementary business operations and we have pursued very similar strategies by broadening out our product ranges and distribution channels. Not only will this give us a leading position in the US, it gives us the scale and financial strength to allow for continued expansion and faster growth in the other regions of the world in which we operate. We look forward to working with Bob Devlin and his team to implement our shared vision, capture new commercial opportunities and deliver long term value to our shareholders.”

Analysts, however, weren’t quite so optimistic. Pru shares dropped 13 percent on the London market after the merger announcement; and one analyst told the BBC that he thought the insurer was “paying a six billion dollar premium for American General, and will only achieve increased income in the $1 billion range. That’s a $5 billion loss.”

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