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Prudential Tries to Reassure Amid Doubts Over Deal

Source: WSJ

Posted on 27 May 2010

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U.K. insurer Prudential PLC on Thursday reiterated that its deal to buy an Asian life-insurance business from American International Group Inc. for $35.5 billion is in the best interest of shareholders amid continued reports of shareholder discontent about the deal.

"There is no change to our position," a spokesman said. "As we have said, we believe this opportunity will deliver substantial long-term value for our shareholders."

Thursday, a shareholder with a £50 million ($72 million) stake in Prudential claimed that he had been told that institutional shareholders speaking for over 15% of Prudential's equity are proposing to vote down the deal at a forthcoming shareholder meeting to approve it.

Separately, two U.K. news reports made similar claims. According to a British Broadcasting Corp. blog posting, Prudential's three biggest investors—Capital Research Investment, a unit of Capital Group of Cos.; BlackRock Inc.; and Legal & General Group PLC—are all planning to vote against the deal.

All three companies declined to comment on their position toward the vote. Capital Group of Cos. is a large diversified mutual-fund company that operates multiple funds, many of which routinely take different positions on their investments, so it isn't clear that its fund managers would all take the same view on Prudential, a person familiar with the matter said.

Shares of Prudential were up 5.7% late Thursday in London amid strong gains in financial shares.

Last week, the company launched a $21 billion rights issue to help it pay for AIA Group Ltd., the biggest share sale in U.K. history. A number of Prudential's top-10 shareholders have privately expressed reservations about the deal, in particular the price the company is paying and the challenges it will face integrating the operations of a business that is roughly 1½ times its own size.

On Thursday, Robin Geffen, the managing director of Neptune Investment Management in London, which has a holding of about £50 million, said he has heard from institutions holding 15.1% of Prudential that they plan to vote against the deal.

"There is clearly a building momentum of people who are intending to vote against the Prudential's proposal to buy AIA," Mr. Geffen said.

Proxy advisory services have so far been split on the deal. RiskMetrics has recommended shareholders vote against the takeover, citing the high cost of capital, integration risks and profit targets that would be difficult to be achieved.

On Thursday, however, Glass, Lewis & Co. said the financing and the deal are in the long-term interests of Prudential shareholders.

"While the deal appears to be pricey when comparing it to Prudential's trading valuations, the higher growth opportunities [and valuations] are in the Asian markets," Glass Lewis said.

Prudential has recently lifted its target for cost synergies in 2013 to $370 million from $340 million. It also said its combination with AIA would produce $800 million in pretax revenue synergies in 2013, up from $700 million previously estimated.

Prudential on Tuesday listed some of its U.K. shares in Hong Kong and Singapore, a key step toward the £14.5 billion rights issue associated with the deal. Existing shareholders will have the right to buy 11 new shares for every two they now own. The rights issue was delayed after the U.K. Financial Services Authority, which regulates U.K. financial companies, earlier expressed concern about the capital reserves of the combined companies.

The AIA deal and the rights issue need approval of 75% of shares voted at a shareholder meeting set for June 7.