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Home > Blogs > Anthony Harrington > A deal too far? Shareholder activism 1, Pru 0

A deal too far? Shareholder activism 1, Pru 0

Shareholder activism | A deal too far? Shareholder activism 1, Pru 0 Anthony Harrington

On the face of it, back when it all started, the Prudential’s $35.5 billion bid for the Asian assets of the troubled US insurance conglomerate AIG must have looked like a career winning move for Pru CEO Tidjane Thiam. Now, with the mega merger deal officially dead and the Pru down a reported £1 billion in fees  to advisors on both the deal and the proposed $21 billion rights issue it was going to have to do, Thiam’s career prospects seem to be dimming fast.

Yet it is by no means clear that the Asian mega merger was a bad play from the outset. Thiam’s judgement was that the emerging Asian life insurance business would be fundamental to strong growth for the Pru in the decade to come. It is not clear how one would argue against that, and the AIG Asian business clearly would have been a huge boost to the Pru’s ambitions in that part of the world.

In the end, the crunch point for the deal turned out to be the difference between what AIG’s shareholders demanded, i.e. circa $35 billion, and what the Pru could scrape together, i.e. $31 billion (or thereabouts). So the Pru came up short and that was that.

The irony, however, is that there is very likely no one on the face of the globe who is in a position to judge, to the nearest $10 billion, what the Asian insurance business will be worth in 10 years, other than that it will be a big number. Nor does anyone quite know what the loss of this acquisition will mean to the Pru’s fate and future.

The problem Thiam faced from the outset, the one that he failed to focus on, was the hidden hand of Fred the Shred. The former RBS boss, Sir Fred Goodwin’s ill fated grandiose acquisition of ABN Ambro has become the ghost at the feast for the City as far as mega mergers are concerned. As soon as a potential merger pops up with a price tag in the few tens of billions range, the City terraces start singing: “Here we go again…” and the would be players get pelted with oranges and other objects that happen to be to hand.

No one cheers these plays any more. The head says, well, maybe, the gut says nuts! And that is that, or at least it is likely to be until someone manages to make another bold mega billion merger deal work and show a decent outcome.

The one winner out of all of this is undoubtedly that abstract entity known as corporate governance. Shareholders in general and institutional shareholders in particular, have been castigated for years for not rapping Boards over the knuckles early enough when said Boards start to exhibit signs of excessive exuberance, or general giddiness. This time round the institutional shareholders did more than rap knuckles. They gave the principles a sound kicking which might yet be the death of them. Did they do well? In point of fact we’ll probably never know, since it is now the road untravelled. Even when we finally get to see how the ultimate purchaser of AIG’s Asian assets does, that still won’t give us a real  answer as to whether the Pru would have done better or worse with those same assets. However, if there is one good rule in investing it is: don’t invest in a muddle, and unfortunately, a muddle seemed to be what the Pru was getting itself into… So score one for shareholder activism, but it might be wise to leave management the right to manage…

Further reading on mega mergers and shareholder activism

Tags: AIG , corporate governance , Mergers and Acquisitions , Prudential
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