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UK insurer Prudential Plc is under no pressure from its shareholders to cut the $35.5 billion price it’s paying for AIG’s Asian life insurance unit, the group’s Asia CEO said.
“At the very beginning, we got a lot of questions around the price, asking us to explain why the price is what it is,” Barry Stowe, head of Prudential’s Asian operations, said in an interview.
“Having had the opportunity to explain, we’re really not getting any push back on price from shareholders at this point,” the 52-year-old insurance industry veteran told Reuters on Friday at Prudential’s Asian HQ in Hong Kong’s Central district.
Prudential is buying American International Assurance (AIA) as it bets on soaring demand in Asia for personal financial services. The move also allows it to swallow a major rival that had planned to spin-off from AIG through a $10-$20 billion Hong Kong IPO.
Prudential is funding the biggest insurance industry deal in history with a $21 billion rights offer, $5 billion in senior debt and the rest in Prudential shares.
Answering some analysts who have said Prudential should have taken on more short-term debt and cut the size of the rights offer, Stowe said there was no room to add more borrowed money to the AIA deal, which already has $5 billion in senior debt.
“The way the Pru group is configured right now there was no room to take on additional debt,” said the former senior American International Group executive.
The deal has been hailed for its strategic sense, but key challenges remain, including Pru’s fundraising and the actual integration.
“While it’s a big job, I haven’t seen anything that suggests to me that it’s an extraordinarily difficult task or there is high risk it will fail in any material way,” a confident Stowe said.
Integrating Pru and AIA promises to be a tough challenge as the two insurance heavyweights have been fierce rivals for decades. Especially, there is the issue of what happens to the army of insurance agents that each company has dealing face-to-face with customers.
Stowe, who took over as Pru’s Asia CEO in November 2006 after 11 years at AIG, said the execution risk the deal faces is far less than what AIG went through during the worst of the financial crisis.
“These guys down the street … they were the poster child for the global financial crisis,” Stowe said, pointing to the AIA building alongside Pru’s office.
“They were the centre of the storm. And if ever there was going to be a franchise destroying disruption, that was it. Yet they held themselves together and got through it, which is quite a remarkable achievement.
“So, people say this is going to be disruptive … probably not as disruptive as that was,” he noted.
Some of AIA’s 320,000 agents and salaried employees stood to gain from the planned AIA IPO, which would have made shares available inside and outside the company. That has prompted Pru to face the issue of AIA workers seeking better compensation after the takeover.
Stowe was not willing to discuss incentive structure, but said: “There is some work to do, but we will make sure that economics and professional opportunities are there for everybody.”
(Editing by Michael Flaherty and Ian Geoghegan)