Expensive
28 February 2010
Prudential has sealed a $35.5 billion (£23.5 billion) cash and share deal with AIG for its Asian AIA insurance business and pursue a joint listing on the Hong Kong Stock Exchange.
Prudential will need to raise $20 billion (£13.2 billion) through a rights issue. The question is weather this is too expensive or a fair price.
It anticipates to generate £132 million of savings by year three, though this will cost $340 million in integration costs.
AIA is a tempting but very ambitious takeover target for Prudential, which has pin its future on harnessing growth in emerging Asia.
AIA is a dominant player in 15 Asian markets and there is some overlap with Prudential’s own businesses. AIA generated $1.43 billion of operating profit over the last year and has 23 million policies held by more than 10 million customers. The distribution reach and power of AIA through its sales force of 320,000 tied agents is one of its major selling points.
The proposed New Prudential would have up to 60% of all insurance new business profit coming from Asia.
Remember as 2008 has shown, shares and other financial assets can go up and down at frightening speed. Don't buy any, unless you know what you are doing and can afford to lose the money.