DealZone

Pru looks to appease shareholders

IAAPrudential’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.

DealZone Daily

Prudential shares rise — modestly — after UK newspaper reports that its largest shareholder — Capital Group – is working on a plan to split the group up. The U.S. investor is not happy with Pru’s planned $35.5 billion acquisition of AIA, the Asian life insurer. It is working with Clive Cowdery’s acquisition vehicle Resolution, insurer Aviva and a third, unknown group, the reports say. An unlikely scenario? Perhaps, but it does show some serious discontent among shareholders.

HSBC has denied talk in the market that it may renew its bid for a $3.9 billion stake in Korea Exchange Bank. When asked whether the bank was bidding for LoneStar’s KEB, the bank’s Chief Executive Michael Geoghegan said: “No, we are not”. Right, that’s settled then.

Deutsche lends credibility to its ambitious targets with quarterly earnings that beat forecasts. The earnings benefit from strong results in debt trading — and the absence of markdowns in areas such as leveraged loans. More on investment banking later, when Goldman Sachs appears before the U.S. Senate.

DealZone Daily

British insurer Prudential is to list in Hong Kong on May 11 and announced a secondary listing in Singapore to fund its $35.5 billion takeover of rival AIA, AIG’s Asian life insurance business.  Prudential said it would publish prospectuses for each of the listings on May 5.

U.S. air carriers United Airlines and Continental are considering a nil premium all stock merger to create the world’s largest airline valued at about $6.6 billion.  US Airways earlier dropped out of merger discussions with United. Many believed United had only entered talks with US Airways to draw out Continental, arguably a better match for it.

CenturyTel is to buy Qwest Communications in another stock deal, valuing the combination of the U.S.’s third and fourth largest landline telephone companies at $10.6 billion. The deal is designed to let the new business, CenturyLink, cut costs and compete more effectively, as consumers increasingly unplug their phone lines and go mobile.

The afternoon deal: Beyond the billions paid

The MetLife building is seen in New York, March 8, 2010. REUTERS/Shannon Stapleton It was a two-year quest to seal the MetLife deal for Alico.  Beyond the $15.5 billion purchase price, what does it mean for the companies and the life insurance sector?

MetLife seals Alico deal after two-year quest
Factbox: AIG’s progress on asset sales

From the Web:

A.I.G. Sells Unit to MetLife (NYT)
“Now comes the hard part.” – NYT

MetLife gets new life from AIG

MetLife is moving up in Japan, the world’s second-largest life insurance market, with the $15.5 billion purchase of Alico from AIG. The unit accounted for 70 percent of Alico’s pre-tax operating income in fiscal year. It also has operations in Europe and emerging markets in Central and Eastern Europe, the Middle East and Latin America. Much like the $35.5 billion sale of AIG’s Hong Kong-based AIA subsidiary the week before to Prudential of the U.K, a chunk of AIG is a transformative expansion for Metlife.

Both AIG and Metlife share rose on the news – one of those win-win deals, the market says. But if you want to be skeptical, just keep in mind that AIG is still only part of the way towards repaying the $182.3 billion it owes the U.S. government and Metlife has just exposed itself to an aging Japanese population with prospects in some ways even more worrying than in the U.S., given its lost decade and its near-routine bouts of deflation.

One thing Metlife will not have to worry about is having a government functionary on its board. Though the sale features a sizable equity component from AIG, we’re told that the chance of Uncle Sam calling the shots at yet another major U.S. corporation is nil.

Prudential’s Eastern promise

(Acquisitions Monthly) Tidjane Thiam unveiled his proposal to transform the Pru into an Asian-focused animal just five months after taking over as chief executive of the stately British insurer. The former Aviva man obviously feels the opportunity presented by state-supported AIG’s effectively forced sale of its Asian crown jewel was too immense to ignore.

The US$35 billion transaction – the biggest ever in the sector – also fits in with the currently accepted reading of the financial runes: that the thriving economies of Asia will provide much of the next decade’s growth. Nevertheless Thiam has done well to secure the services of three of the financial crisis’s undoubted winners in Credit Suisse, JP Morgan Cazenove and HSBC.

The impressive line-up are only too willing to flex their financial might to back such a deal through a US$21 billion underwritten rights issue, the largest ever for acquisition purposes. If the Pru’s biggest investors, Capital, BlackRock and Legal & General, are unwilling to take up their rights, finding fresh investors should not be too difficult.

Can AIG become small enough to fail?

What if AIG sold everything it had? How big a hole in the ground would be left? Perhaps something less than a crater but certainly more than a gopher hole, now that it has agreed to sell its Asian life insurance arm to Prudential of the UK for $35.5 billion. AIG CEO Robert Benmosche, who has been focused on getting as much as he can for the assets that once made up the AIG colossus, must have figured the deal was more lucrative than the Hong Kong IPO that had been in the works.

AIG is busy repaying a $182.3 billion government bailout it received at the height of the financial crisis. First to be paid back are a $16 billion special purpose vehicle and $25 billion taken out of a credit facility taxpayers set up for AIG. The Prudential deal won’t cover those debts, but next up is the pending sale of American Life Insurance Co, or Alico, to MetLife in a $15 billion deal held up by a tax question.

Earlier this month, Benmosche said AIG would shed enough assets to remain a global property-casualty and U.S. life and annuity operation at its core. AIG would become “not too big to fail,” he said in an interview with Contact. But having already been saved once, and with taxpayers now owning the company, the question of success or failure seems almost pointless.

Dribs and drabs from AIG’s fire sale

Sometimes it’s easy to sniff at $70 million, particularly when you have government loans of $80 billion to repay (while the total size of the AIG bailout was closer to $180 billion, much of that consists of toxic mortgage assets that are now owned by U.S. taxpayer). So news that AIG has agreed to sell its Hong Kong consumer finance and India-based IT services units for that amount may seem to be a paltry offer for discussion, even in the blogosphere.

It’s not as if the well is dry on the M&A front. Microsoft and Nokia are set to announce a tie-up of some sort – assumed to have to do with office apps on Nokia phones – and UBS is inking a deal to get it out of the tax-haven doghouse with U.S. authorities.

But spare a thought for poor AIG nonetheless. AIG Financial Products said this week it had completed the sale of its energy and infrastructure investment assets for net proceeds of about $1.9 billion – better than a 1 percent chunk of its total bill to U.S. taxpayers, but the division blamed for so much still has mountains of assets to unload. And it has stepped up plans to list its Asian insurance unit, American International Assurance, in Hong Kong after failing to find a buyer for a large stake in it earlier this year.

DB pulls off surprise

AIADeutsche Bank, the underdog in the race to run the IPO of a large AIG unit, has come out on top.

The German bank has been chosen as one of two global coordinators to run the IPO of American International Assurance (AIA), beating out Goldman Sachs and Citigroup, which ran the aborted auction of the Asian life insurer earlier this year.

Morgan Stanley, the other global coordinator, is no surprise. The bank has been advising the Fed since the September implosion of AIG, and on top of its own expertise, regulators wanted it in.