Posted on May 04, 2010 by Sergio Ulloa
Anticipating the details of how Prudential plans to finance the deal to acquire American International Assurance (AIA)
in a couple more days, several high-profile investors expect the announcement of the sale of UK and US businesses in favour of Asia to fund the said purchase. The alternative these investors are not very keen on calls for a US$21 billion (EUR 15.91 billion) rights issue
to fund the deal.
The UK and US business of Prudential remain profitable and the cash they produce are expected to be invested in the growth of the business in Asia. Besides, the credit rating of Prudential is in great part based on the solidity of the business done in the UK.
The largest shareholder, Capital Research and Management, has reservations about the massive size of the rights issue in the London market under the current unstable conditions, aggravated by the Greek bond crisis.
Complicating matters further, UK business done by Prudential has been stagnant for several years now and the growth outlook is not a very positive one, with savers in the UK scaling back on savings and investments, increased sales competition, plus calls in Brussels for more stringent regulation of insurance companies.
The Extraordinary General Meeting (EGM) to be held towards the end of this month needs the vote of at least 75 percent of shareholders approving the rights issue, and to that effect Prudential must present an airtight argument as to why this would be the best choice for the company to fund the AIA acquisition.
Some analysts note that the high growth of countries such as China, Vietnam and Indonesia may provide the type of return expected by investors, including large US pension funds managers and sovereign wealth funds from the Middle East, therefore noting that the move to Asia may be unavoidable.
After the purchase of AIA, Prudential would most likely review its holdings, which would not be expected to call for any immediate sales.
Insurance Companies mentioned:
Prudential has been in the insurance and financial services business since 1848. Today they operate throughout the UK, US and Asia offering international health insurance and retirement planning services, supported by 27,000 employees worldwide.
AIA is a Hong Kong-based life insurance company doing business across Asia that has been in business since 1919. They service over 20 million policies through 23,000 employees and 300,000 agents throughout markets in Asia, including; Vietnam, Thailand, Taiwan, South Korea, Singapore, Philippines, New Zealand, Malaysia, Macau, Indonesia, India, Hong Kong, Mainland China, Brunei and Australia.