from DealZone:
Pru looks to appease shareholders
Prudential's strategy to appease shareholders: It will spit out what it can't chew as it swallows a business bigger than itself.
The UK's largest insurer is expected to outline divestments of some Asian assets in its upcoming rights offering prospectus to allay concerns about its planned $35.5 billion acquisition of AIA, AIG's Asian life insurance unit.
Shareholders have become fretful about Prudential's ability to pull off the mega transaction. It hit a regulatory snag last week and delayed the release of the prospectus for the $21 billion rights issue to part fund the deal.
Reuters reported in March that Prudential was expected to exit some Asian markets after the completion of the American International Assurance (AIA) buy, to focus on key markets and raise at least $1 billion.
"For most countries in Asia they have still not reached a conclusion for integration plans. For some, they will probably announce on the day the prospectus is out," a source told Reuters. Prudential may have to go beyond a few asset divestitures to satisfy shareholders. Capital Research & Management, its largest shareholder, reportedly would like to se e the group to be broken up.
from DealZone:
Uncertainty principles
Faced with a $34 billion hole uncovered in the stress test, Bank of America might have little choice but to dump its investment in China Construction Bank, China's second-largest bank. That would give it about a quarter of the $34 billion of additional capital we are told it needs to fill a yawning gap in its foundation. A lock-up on a portion of the stake ends tomorrow, and the opportunity may be too good for embattled CEO Ken Lewis to pass up, though the bank has plenty of incentive to hold onto the stake.
Citigroup's Keith Horowitz raised his price target on the bank, citing the end of uncertainty. He also says the total need at the 19 stress-tested banks will be $75 billion, with Bank of America accounting for the lion's share.
At this point, with hundreds of billions of public dollars having been heaved at the likes of AIG, Citi, Bank of America, automakers, auto suppliers, life insurers, etc. that number is hardly shocking. And with the S&P having recovered 25 percent of its recession-fueled losses, is it time to expect investors to become more aggressively exposed to the end of uncertainty?
Other deals of the Day:
* British insurer Aviva is exploring options to sell its Australian business, which has an estimated value of up to A$1 billion ($740 million), sources with direct knowledge of the matter told Reuters.
* GlaxoSmithKline has agreed to sell the U.S. rights to the antidepressant Wellbutrin XL to its Canadian partner Biovail Corp for $510 million, the world's second-biggest drugmaker said.
* The clans that control the Porsche automotive empire are set to meet in the hopes of finding a solution to its high-risk takeover plans for Volkswagen that have backfired.
Who’s next for the Dow?
Arzu Cevik, director at Thomson Reuters Strategic Research, writes:
“With Citi shares trading below $1, the first time since 1970 that a “penny stock” traded on the Dow Jones Industrial Average, it is widely expected that it will be removed from the index.
“The company was added to the Dow in 1997 when it was still known as Travelers, and the last company to be removed from the Dow was AIG last September (when its stock hovered above $1) and was replaced by Kraft Foods.
“It’s also expected that General Motors may be removed from the Dow. GM shares are trading slightly above $1 and there’s speculation it may be headed toward bankruptcy.
“There are other stocks in the Dow that are now a part of Wall Street’s Dollar Menu. In fact, there are currently five Dow stocks trading in the single digit range.
“Who will take their place in the Dow? Mostly likely, another company whose stock is faring better or relatively better in this recessionary environment.
“There aren’t too many of those but if I had to guess, I’d say it would have to be a company with a strong brand name and one that is viewed as influential. Also, one whose shares aren’t trading in the single digits.
The cover story of the latest Barron’s declares optimistically “Sure, stocks could slide much further — but they probably won’t. By most measures, they are downright cheap.”The Stock Research Portal comments that the article contains a “fatal flaw”: “the heavy reliance many economists, analysts, others place on historic trends and their application to current day prospects. Right or not, I believe that after the turn of the century the world has become a quite different place.”Via Stock Research Portal (www.stockresearchportal.com)
The curse of English football continues
After the collapse of Northern Rock, AIG and XL group – which sponsored Newcastle United, Manchester United and West Ham respectively — the curse of English football is getting stronger. Today Iceland’s Landsbanki went into receivership. Its chairman Björgólfur Gudmundsson owns West Ham football club.
In November 2006, Gudmundsson, Iceland’s second richest man, led an 85 million pound buyout of the east London club in November 2006, investing another 30.5 million pounds in December 2007.
Former Thai Prime Minister Thaksin Shinawatra sold his Manchester City football club to an Abu Dhabi-based company having gone into exile in London in August on corruption charges.
Still, Thaksin did make a fat profit.
What do you think of the ‘Paulson Doctrine’ ?
Some financial firms, but not all, will be saved. The pattern was set with Bear Stearns in March and repeated with Fannie, Freddie and AIG this month — but not Lehman Brothers. Information Arbitrage lays it out this morning here.
“Unwittingly or not, Treasury Secretary Paulson has effectively created the Paulson Doctrine. The doctrine states that firms that he deems too big to fail (but we’re not exactly sure where the line is drawn: LEH? No. BSC? Kind of. MER? Maybe. AIG, FNM and FRE? Definitely.) get the U.S. Government (and the U.S. taxpayer) as new senior shareholders, while the others are either left to execute an orderly private markets Good Bank/Bad Bank restructuring (if they can, like Mellon in the late 1980s) or a hurried Chapter 11 Good Bank/Bad Bank restructuring (if they can’t: see BCS/LEH circa 2008).
Sure, the headline reads that the Fed bailed out AIG, but was anyone other than Mr. Paulson pulling the strings? I doubt it. So what of this doctrine, and what does it mean for the global financial markets, the integrity of the U.S. regulatory regime and the U.S. taxpayer?
As for the Federal Reserve-backed rescue ofAIG, Reuters’ Emily Kaiser says that the “US central bank may have wiped out what credibility it won resisting Lehman Brothers’ rescue plea, and opened its door to countless other companies to come calling for cash.”
What do you make of the ‘Paulson Doctrine’?
Picture: Treasury Sec. Paulson/REUTERS/Paul Szep
I personally think welfare is a necessary evil that should be reserved for those whose children might go hungry without it. This welfare for the rich makes my stomache turn. Paulson and the rest of the “old boys club” will be laughing all the way to their off shore bank accounts if they get what they are asking for on this.
Round-up: Views on AIG, stock strategies and the economy
As CNBC’s on-again, off-again call for the calvary for AIG held the stock market’s attention, Tyler Cowen posted what may well be what we’ll remember about this unusual day: “It’s a little scary that the world’s largest insurance company hasn’t planned for a rainy day.” (Marginal Revolution)
Mark Thoma is monitoring the bailout-moral risk debate on AIG and sides with Willem Buiter in the FT this morning. “Unless we are very certain that telling AIG to ‘go away’ will not endanger the overall economy, then protect jobs and the economy first and foremost by ensuring, minimally, that an orderly liquidation occurs,” he posted in the Economist’s View.
Count Stan Collender at Capital Gains and Games as one of the surprised at the sudden shift of events. After two weeks off the gird, he returns Tuesday and notes “a substantial change in the reporting on the financial situation. There was a certain almost arrogance and swagger just before I left. The mantra was that Bear Sterns was the beginning of the end of the problem. I don’t hear that now.”
Marc Gerstein isn’t too interested in the blame game. “Exotics or not, if you lend a ton of money to people who can’t pay it back, you’re going to suffer.” He puts growth and sentiment models to the test and concludes “we’re still likely to be better off if we own reasonably valued shares of companies with demonstrated records of being able to grow earnings” despite the wrenching transition taking place in some sectors. (Gerstein used to write an investment column at Reuters.com and is now at Portfolio123).
On the broader economic front, Brad DeLong’s Semi-Daily Journal looks at Monday’s Industrial Production release and concludes: “For about a year we have been blessing the disconnect between financial chaos and construction depression on the one side and real-side economic ‘weakness’ elsewhere in the economy. Let’s hope the disconnect continues. But it looks as though it isn’t: the recession has spread out from construction into goods production broadly.”
