Rivalry Haunts Prudential/AIA Integration

By and | April 26, 2010

British insurer Prudential will try to reassure investors it can seamlessly absorb the Asian arm of AIG next week when it publishes the prospectus for a record $21 billion cash call to fund the takeover.

With shareholders broadly backing the deal’s strategic rationale, attention is now turning to the obstacles that could impede it. They include anti-trust intervention and a history of deadly rivalry between the Asian divisions.

“These transactions are effected at the shareholder level by shuffling a few bits of papers around, which, as long as everyone can agree, happens reasonably quickly,” said Tony Silverman, an analyst at S&P Equity Research in London. But there’s a big job to do to integrate the sales forces on the ground. It’s going to take a year or two.”

Shareholders have told Reuters they want the prospectus to include full details of synergies and the integration plan as well as the rights issue price and fee details so they can decide whether to back the immense deal.

Personal rivalries and a mismatch between the two cultures could provoke an exodus of senior executives when they team up, according to one person working on the deal.

“They don’t like each other,” he said. “Given the overlap in their Hong Kong office, there are going to be some pretty significant social issues. Whether people leave or are asked to leave, the result will be the same.”

One senior AIA executive, who asked not to be named, described the two sides as “arch enemies” and Prudential has so far kept a diplomatic silence on who will lead the enlarged Asian operation.

Bankers see the appointment process as a two-horse race between Barry Stowe, currently CEO of Prudential Asia, and Mark Wilson, his opposite number at AIA, with the losing candidate likely to quit once the final decision is made.

Prudential last week gave the job of integrating the Asian units to its UK CEO, Rob Devey — seen as neutral because of his British background and designed to avoid inflaming tensions between the rival Asian camps, bankers said.

Worries about the impact of the takeover are not confined to the upper echelons of the organizations. Back-office staff will lose their jobs as Prudential needs to deliver on £340 million ($523 million) in cost savings.

And while Pru plans to expand the two companies’ combined sales force, frontline sales staff are also uncertain about how the integration process will pan out.

“I will only be concerned about my future when Prudential and AIA comes under one entity. Then the culture might be different and a lot of changes may be made,” said one AIA sales employee, speaking on condition of anonymity. He said commission systems were different for a start.

Pru’s $35.5 billion takeover of AIA, the insurance sector’s biggest ever acquisition, will double the British group’s exposure to Asia, where demand for personal financial services is booming thanks to robust economic expansion.

The deal looks set to create a new force in Asian life insurance holding the number one position in 7 countries across the region, including Hong Kong and Singapore.

Intervention by competition watchdogs can’t be ruled out, despite Prudential Chief Executive Tidjane Thiam saying intervention by local regulators was “not a major concern.”

Analysts at Oriel Securities said there could be questions over the combined group in markets including Hong Kong, Singapore, Malaysia, the Philippines and China.

Wenli Yuan, a Hong Kong-based analyst at consultants Celent, said the deal could also need a review of the firms’ joint venture arrangements in some countries and some changes to their bancassurance deals, with integration “a very complicated problem”.

AIA could not be reached immediately for comment. A Prudential spokesman in London said that the successful integration of the company with AIA in Asia was critical to ensuring it delivered long-term value to shareholders.

(Additional reporting by Michael Flaherty, Denny Thomas and Ronnie Koo; Editing by Jon Loades-Carter)

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