UK’s Prudential Trims Cost of Botched AIA Deal

August 12, 2010

Insurer Prudential said its failed bid for AIG’s Asian unit will cost less than first expected, and confirmed that the bungled takeover attempt has killed its appetite for big M&A deals.

The bid for Hong Kong-based AIA will cost 377 million pounds ($591.4 million), down from an initial estimate of 450 million pounds, thanks to reduced fee payments to its advisors and lower foreign exchange hedging costs, Prudential said on Thursday.

Presenting a forecast-beating first set of results since the collapse of the AIA deal in May, Prudential — Britain’s biggest insurer by market value — also said it would not revive its bid for AIA, and confirmed it had no plans for any other big takeovers.

“We are focused on an organic growth strategy. Large inorganic transactions are not on the agenda,” Prudential Chief Executive Tidjane Thiam told reporters on a conference call, adding that the company had “ruled out” another approach for AIA.

Prudential was forced to pull its $35.5 billion bid for AIA, a deal that would have ranked as the insurance industry’s biggest ever takeover, after its shareholders balked at the price tag and AIG rejected a lower offer.

Thiam said shareholder pressure for his resignation and that of Prudential chairman Harvey McGrath in the wake of the botched deal had largely subsided.

“There’s always a range of views, it’s a diverse community. But overall I believe we have the support of the body of our shareholders and we can only operate on that basis,” he said.

Prudential has reverted to its previous strategy of growing organically by channelling investment towards its lucrative Asian markets, complemented by occasional small acquisitions.

The company, Asia’s second-biggest foreign-owned insurer after AIA, is expected to begin talks about buying a stake in Malaysian insurer Pacific & Orient after P&O got regulatory clearance to enter discussions this week, a source told Reuters on Thursday.

Prudential also said its IFRS operating profit for the first six months of 2010 rose 19 percent to 968 million pounds, outstripping the 724 million pounds forecast by analysts, according to the company’s calculation of consensus expectations.

Shares in the insurer were up 0.9 percent at 567.5 pence by 1140 GMT, outperforming both the FTSE 100 and the European insurance stocks index, which were respectively 0.3 percent higher and 0.6 percent lower.

“These results are strong in terms of underlying progress. There are no announcements on any management changes, and this is likely to disappoint some,” Redburn Partners analyst Lance Burbidge wrote in a note.

Prudential’s improved performance was driven by its Asian and U.S. operations, which both saw profits rise 24 percent, outstripping an 11 percent increase in the UK.

Prudential also said it was unfazed by the prospect of renewed competition from AIA under its newly-appointed chief executive Mark Tucker. Tucker preceded Thiam as the head of Prudential, and is credited with building up the British insurer’s Asian operation during the 1990s.

“We have a lot of respect for Mark Tucker, and I’m certain he’ll be a good leader for AIA,” Prudential’s Asia chief, Barry Stowe, told reporters.

“We’ve always had strong competition and it really doesn’t put us off at all.”

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