AIA’s new chief could unlock two deals

July 19, 2010

In giving its Asia chief executive the chop, American International Group may have unlocked two deals. First, the flotation of its AIA division in Hong Kong, which should now go ahead after a false start. Second, an eventual merger between AIA and the Asian portion of its big rival — and recent failed suitor — the UK’s Prudential.

AIG’s decision to oust former AIA head Mark Wilson is no surprise. When Pru launched its bid for AIA in March, Wilson privately cast doubts on the merits of the takeover offer, a deal championed by AIG’s combative chief Robert Benmosche. Wilson’s perceived opposition was one reason Pru shareholders began to turn against the deal.

The arrival of Mark Tucker removes some bad blood. But he looks a safer pair of hands too. As former chief executive of Pru, he has experience of running a listed insurance business — something Wilson lacked. True, Wilson guided AIA through its post-crisis rehabilitation, but Tucker ran Pru’s Asian business for 11 years.

AIA has already begun hiring banks for its initial public offering. But the originally mooted $36 billion price looks uncertain. Tucker is, for all his industry experience, new. AIA’s finance director left during Pru’s bid. Investors may demand a deeper discount than normal to compensate for the lack of management continuity, since some 60 percent of AIA’s value lies in its past policies.

Still, more interest may alight on a different transaction: a possible merger of AIA with Prudential’s Asian business, only with AIA on top. Pru gave much airtime to the strategic merits of such a combination, and to the synergies, which had a net present value of around $8 billion. AIA plus Pru would be by far Asia’s biggest regional insurer, with near monopolies in markets like Hong Kong.

Tucker will have little time to plan a break-up bid for Prudential for now. But the UK insurer is a sitting duck after its failed tilt at AIA. While AIA has a new experienced chief executive, Pru’s remains discredited. Should a potential bidder for Pru’s non-Asian assets surface — and UK insurance raider Clive Cowdery looks one such — he should find Tucker all ears.

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