Wednesday, 2 June 2010

The men from the Pru to pay a high price for failure

Painful though it is for shareholders, the events that have led to Prudential’s takeover ambitions being shot down in flames are a gift to financial journalists of which I was one until a year ago.
The story is just the sort I savoured. The detail is complicated – and, as ever, is where the devil lives – but the broad outline is easy to grasp.
New chief executive Tidjane Thiam – backed by the insurance group’s chairman Harvey McGrath – wanted to buy the much bigger Asian life arm of AIG, the US insurer that would have gone under but for American government support.
The duo’s efforts to raise the £24 billion cash for the deal was dogged from the outset.
Crucially, they failed to convince their own shareholders they weren’t overpaying. When the downturn in the stock market demolished their case, they went back to the Americans but AIG wouldn’t cut its asking price. Consequently the deal has collapsed.
Pru shareholders, who meet next week, are massively out of pocket; the company’s strategy is in shatters; and now is itself a bid target. Thiam looks likely to get the chop and McGrath will be lucky to hang on to his job.
I hope Mark Tucker – the Pru’s Chelsea-mad former chief executive – gets called back, at least, on a temporary basis to sort out the mess. He impressed me on every occasion I met him.
This is my first unquestionably City post since I started blogging, although I have left out the financial numbers which can be found on this first rate Reuters link.
I do so because the Pru’s fate could mark a step-change in the Square Mile. On one hand it is a victory for institutional and small shareholders alike. Managements will be reminded that not everyone believes bigger is better – at any price.
But at the same time short-termism – where City investors are obsessed with making a quick buck rather than building for the future – has triumphed. This policy leaves British business more often the prey rather than the predator in the international takeover market.
The inescapable conclusion is that the Pru’s management messed up. If it were a soccer club, the top brass wouldn’t see another season.

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