Prudential Deal Dealt Blow By Proxy Adviser
May 26 2010 - 7:12AM
Dow Jones News
Prudential PLC's (PRU.LN) plans for a massive Asian acquisition
and rights issue were criticized again, as an influential
shareholder proxy advisory service raised its voice against the
deal.
RiskMetrics recommended shareholders vote against Prudential
$35.5 billion takeover of AIA Group Ltd., the Asian business unit
of heavily indebted American International Group Inc. (AIG).
RiskMetrics cites a high cost of capital, challenging profit
targets for AIA that could be difficult to deliver and integration
risk for its recommendations.
Its stance is the latest challenge for the deal that has
reportedly failed to win the backing of some of Prudential's major
shareholders due to the large size of the rights issue being used
to fund it, and which was nearly derailed by the U.K.'s financial
services regulator's concerns over capital reserves.
RiskMetrics said in a report that while the strategic rationale
behind the deal was sound, Prudential was paying a high price for a
risky deal.
"While the deal's valuation might be fair in terms of deal and
trading multiples, it doesn't necessarily follow that the deal
makes sense for Pru," RiskMetrics said. It highlights that to
deliver return on invested capital, AIA's operating profits would
need to grow at very high rates which can't be counted upon.
"We believe that a full price, integration risk and ambitious
targets to barely meet what we believe is a reasonable cost of
capital do not make a compelling combination. As such, we recommend
shareholders vote against the deal."
Prudential said in a statement it disagreed with RiskMetrics'
assessment.
"We believe our profit targets are robust and achievable within
the forecast horizon of 2013," a spokesman said.
"We believe the combination of Prudential and AIA represents a
compelling combination that will deliver very attractive returns to
our shareholders."
Prudential on Tuesday listed some of its U.K. shares in Hong
Kong in Singapore, a key step towards a larger GBP14.5 billion
rights issue associated with the deal. Existing shareholders will
have the rights 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 its concern about the capital reserves of the combined
groups.
Shareholders must vote on the transaction at a June 7
shareholder meeting.
Prudential management has recently claimed that the majority of
shareholders back the deal, based on the logic of gaining access to
fast-growing Asian markets.
But the Capital Group Cos. Inc. (CAP), Prudential's largest
shareholder, has been reported to be opposed to the deal. It hasn't
commented.
Many analysts have said that the integration of the two
companies will be challenging. Earlier this week, it was reported
that AIA Chief Executive Officer Mark Wilson was planning to step
down if the takeover went through. Prudential said it hasn't had
any indication that Wilson plans to leave the company.
At 1040 GMT, Prudential shares were up 4 pence, or 0.9%, to 516
pence in a higher overall market.
-By Jessica Hodgson; Dow Jones Newswires; +44207 8429373;
jessica.hodgson@dowjones.com.
CAI (NYSE:CAI)
Historical Stock Chart
From Mar 2024 to Apr 2024
CAI (NYSE:CAI)
Historical Stock Chart
From Apr 2023 to Apr 2024