大象传媒

Surely AIG/US Treasury missed a trick here at the expense of Pru's shareholders... Could they really issue an IPO for AIA for $30bn+? Which would be $11bn more than the largest ever IPO seen in the world?

On a side note, abandoned deals like these must be music to the square miles collective ears. Imagine a builder saying, i'll draw out the plans for your loft conversion, but if you dont go ahead with it, ill still receive most of the fee.

All this user's posts have been removed.Why?

> The Pru's attempted takeover of AIA is dead and buried - which kills
> off one of the most ambitious attempts to expand overseas by a
> British company. There's no ambiguity about that.

I was amazed when the boss of the pru tried this at all. He is naive about the changes that have occurred in the world since 2007.

The worrying question is this: how many "Sir Greedies" are still stuck in the same old groove? This is important - until we have rooted out the old school, we are in grave danger of having large, highly coupled financial businesses that are "too big too fail".

I don't know how many times I have to explain this to the "thick-ears" running money-business in Britain - we are breaking money-business up, so that firms are so small we don't give a hoot about them.

That is our goal, so they have to get with the program, or find new jobs.

@ 1. At 11:52am on 01 Jun 2010, RiskAnalyst wrote:

> Imagine a builder saying, i'll draw out the plans for your loft
> conversion, but if you dont go ahead with it, ill still receive
> most of the fee.

Yes. Only a dunderhead would sign such a contract. Yet that is the type of thing our "Sir Greedies" (unable to contain their ambition for world domination) readily sign up to. It is a travesty that owners have promoted nincompoops to positions of authority.

For the last few weeks the 大象传媒 has been banging on about this Pru story, although it means nothing to the average man in the street. Why ? Most people don't give a toss.

It's very clear that the move was always highly strategic, pointing the way to a greater reliance on Asia and a potential move away from Europe. The shareholders appear to have signalled their displeasure with the strategy, so the conclusion is a faily easy one to draw.

This again points to the weakness of managements not controlling costs that their shareholders ultimately have to bear.

The overall weakness therefore is not in the idea but in the weak execution of this to the benefit of the shareholders. Sadly, they now have a lost opportunity and also have to pay for that both in this year and in future years as the business struggles to maintain critical mass.

I assume that comment #5 is an expression of incredulity at the apathy of the general public despite the effects that earlier incompetence in the financial sector had/will have on their lives?

What I would like to know is how much money the board were likely to trouser if the deal had gone throw. Because the motivation for these people is self interest, rather than the good of the company.

@ 6. At 12:32pm on 01 Jun 2010, PercyPants wrote:

> It's very clear that the move was always highly strategic

The clue's in the name: Prudential - exercising prudence or sound judgment...

We didn't see much of that in this debacle, eh?

From the beginning of this attempted deal, I never believed it was prudent. I thought Pru's takeover looked inprudential, and I hoped that Pru would end up doing the prudent thing.
I don鈥檛 really know what Thiam was thinking, but it was probably something like: financing the reverse takeover of a company that cost twice as much as Pru itself did. Genius! - But only if you've read all the players well. At this Thiam failed.
There were many factors stacked against Thiam, including his own lack of experience, regulatory mandates鈥ut it was destined to be price that killed the risk, and believe me - heavy risk was what it was!
AIA is a child of an extrmely troubled parent AIG 鈥� and one could not project where these nascent genes might pop up, display themselves, or even self-dustruct.
The Pru already has a good growth in Asia. Last night Thiam lost his prudence; he seemed anything but prudential - scrambling, calling in favours, desperately trying to salvage the deal. To me Thiam seemed almosdt obsessive compulsive, as though...he had something extremely important to lose and therefore for the life of him, he could not, would not, let go of this deal. (I wonder what that "something" might've been.)
Meanwhile the Us Treasury waits for some return on its bail-out cash from AIG.
Meanwhile Thiam has put Prudential in the position of digging deep financially to pay for hefty deal-breaking fees, advisory consultations and currency hedges鈥 don鈥檛 want to read to much into this, but where you have any have this bet against AIA/PRU.
Someone made money here. Guess who?

Robert

Asset Price inflation is running at a disastrous 8.5% - THIS ACTUALLY MATTERS.

The Pru can bail on its unwise over priced bid. None of us can bail out of this huge level of inflation.

The Bank of England is yet again failing us all! Sitting on your hands and whistling is not a monetary policy Mervyn!

Each and everyone of the UK's working population owes 拢75,000 in public sector debt - that is still getting bigger and bigger by about 拢 156 bn out of 拢 1.8 tn (or some 8.67 % a year compound) as well as an excess debt of another 拢35,000 in unaffordable private debt. This matters and will cripple us and the UK economy fro a generation. The Pru was daft and over bid and should retrench, but we can't!

It might just be resting.

"Which means that some shareholders will feel that the failure requires those at the top of the Pru to pay a price. There will be pressure for the resignation of the chief executive, Tidjane Thiam, and also for the exit of the chairman, Harvey McGrath" - this is fantastic ! it's part of the feedback system that's a vital part of real Capitalism - they have to account to ... someone. This means that instead of the Shareholders writing a letter to the complaints department of the Pru and getting a 'thanks for your comments' reply they can boot these bods out. This is part of real capitalism.
However - this is not part of Real Capitalism : Bilderberg (do your own Google search)
Here the supposed 'top bods' meet in secret (no feedback, no accountability hence no real Capitalism) - they are meeting in Spain 4th of June. Their essential claim is that they are so 'top' and clever that accountability just gets in the way of things - well these are the people who brought you the Euro and all the "what do you mean there was a NO vote in Europe - just have another one !" - How about the 大象传媒 doing a serious piece on this. Mr Peston - want to do a serious article on a secret meeting between the head of the IMF and World Bank, prime ministers and generals, Newspaper owners and media magnets, head of oil companies and international banks ? and it鈥檚 been all 鈥渟hh don鈥檛 tell the peasants鈥� for 50 years of this meeting鈥�
What unaccountable nonsense will these guys think up next ? War with Iran is rumoured to be on the discussion agenda. These guys are not a few bods in a pub talking about a strike on Iran, these are the guys who can make it happen. Will they be use their 'super, top brains鈥� and address the possibility of using to solve the economic crisis ? Or will it be the usual dumb 'let's make people work harder and pay them less' - what sort of 'top brain is this ?'

RiskAnalyst wrote: "On a side note, abandoned deals like these must be music to the square miles collective ears. Imagine a builder saying, i'll draw out the plans for your loft conversion, but if you dont go ahead with it, ill still receive most of the fee."

I'm afraid that your analogy isn't quite right. To extend yours, a more accurate description would be a builder agreeing not to take on any more work for a certain period (underwriting ties up capital that can be used elsewhere) and that the risk of that, whether utilised or not, carries a cost.

Underwriting isn't risk-, or cost-free, regardless of whether the deal completes. Every RiskAnalyst knows that! ;-)

#8 - No. My comment was rather a criticism of the 大象传媒 in particular and the 24-hour news media in general who will pick up on any "story", regardless of its relevance or not to most people, in order to spread doom and gloom.

"That better price may come from reverting to AIG's plan "A" of floating AIA on Asian stock markets" Am I missing something here?
I am Asian residing in Singapore, because of the 2008-2009 financial crisis; I hedged myself by borrowing against my own life policies from this same company. At that time, notwithstanding, the soothing words of the Singaporean Monetary Authorities or USA Fed capital injection, I don't care. My own personal safety is my priority; not subservience to blind faith.
Today, with my life policies' borrowings repaid, I have no interest in buying AIA's shares. I am not stupid to over-expose myself to AIA by owning additional shares.

The Americans still believe the Far East to be a U.S fiefdom; I mean to say " John Wayne won it for us!".

Just as they wouldn't allow Middle East interests to acquire major Port and Harbour holdings they were not going to easily allow the "British Empire" to regain a leading position in what will undoubtedly be the fastest growing and most lucrative Insurance market in the world (once you have amortized the level of "Scam" inherent).

As Peston states or suggests; this will be sold or I.P.O'd at a very adjacent figure to that which the Pru have offered.

Many are obviously thinking that this is along the lines of the ABN Amro auction which crippled RBS and the failure to win which left Barclays in a so much better place.

That's a "What if?" that the smug Barclay's shareholders must wake up sweating about as their final offer was very little below the winning bid.

I believe personally that this Prudential deal is an opportunity missed.

As to the poster who questioned the relevance of one the world's biggest ever financial deals to the 大象传媒 business editor I suggest he sticks to conspiracy theories and checking the price of beans at Netto.

As someone else pointed out; Credit Crunch = Recession = Deficit = WE ARE ALMOST ALL POORER.

Shame R.P wasted so much time on THAT story as well.

15. At 2:25pm on 01 Jun 2010, Matt wrote:
RiskAnalyst wrote: "On a side note, abandoned deals like these must be music to the square miles collective ears. Imagine a builder saying, i'll draw out the plans for your loft conversion, but if you dont go ahead with it, ill still receive most of the fee."

I'm afraid that your analogy isn't quite right. To extend yours, a more accurate description would be a builder agreeing not to take on any more work for a certain period (underwriting ties up capital that can be used elsewhere) and that the risk of that, whether utilised or not, carries a cost.

Underwriting isn't risk-, or cost-free, regardless of whether the deal completes. Every RiskAnalyst knows that! ;-)

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If only every member of the Joe Public could make money out of 'opportunity cost' the way the banks do, would be a much more level playing level.

Also to touch on the issue of capital, lets hope the banks are this prudent with capital allocation and requirements when it comes to their prop desks as they are with the underwriting of a rights issue, which coincidentally they will have hedged all the way.

No matter which way it is spun, banks make MUCH more money for what is relatively little effort. Relative to the work and effort of a mechanic, plumber, road sweeper, let alone doctors, police officers, armed forces, and fire men. Catch my drift ;-)

The reason that Thiam and McGrath have to go is because they negotiated themselves into a position where failure to consummate the deal will cost the Pru a billion pounds.

Now if only RBS's shareholders had taken the same approach.

What we know is that in the past these companies were never hesitant to risk other people's monies but now are more cautious because they could actually lose their jobs.
The fee structure listed, although not in great detail, reflects the industry-developed costs of trading money, which also contributed to the financial collaspe. One thing people should notice is that the financial industry has not reduced it's fees when trading or organizing deals...high reward, very little risk, as they are paid up-front. International banking,a criminal organization if more appropriately named, has made no adjustments since they ran off with everyones monies and in return were rewarded by governments. Why should they change. For all the growth in Asia, the issue of governments remain and Asian leaders wear corruption like a band of honor and have no reluctance to steal from the banks and bankers as the banks and bankers want to steal from the Asian governments, this creates a risky situation. Greedy tend not to share the plunder.

superseasideman is clearly wrong, it's merely pining for the fjords.

Q: How do you buy a small insurance company operating in the Asian market?

A: Buy a big one and wait.

I think the Pru shareholders should be glad it's not going through.

For those of you poor souls that failed to see the unquestionable logic behind this deal, I refer you to the Financial times of 7 March 2010. This explains everything!:

Thiam's 12-point guide to daring M&A

Financial Times (FT.Com), 07 Mar

Last week, Tidjane Thiam, chief executive of Prudential, launched a $35.5bn (拢23.5bn) bid for the Asian business of AIG.

Since then, the share price of the UK insurer has fallen 13.7 per cent.

The deal was launched at a time when many chief executives are still reluctant to commit themselves to undertaking transforming deals of the type usually only seen at the peak of bull markets, wary of uncertain markets and tough scrutiny from shareholders.

But for those chief executives who have cut costs and repaired their balance sheets and are now itching to expand through acquisitions, here is Mr Thiam's 12-point guide to express M&A in a downturn, written with the assistance of his lead adviser, Credit Suisse.

1) Run a FTSE 100 company for a maximum of six months before launching the biggest deal of your life.

2) Choose a target that is twice the size of your own market capitalization.

3) Hire the same advisers that had been advising your target's parent company on a potential flotation.

4) Give those advisers less than a week in which to put together any deal of significant size and complexity.

5) Choose one large market, such as Asia, then bet the entire company on that strategy.

6) Don't talk to your top 30 investors about the acquisition - surprise them by presenting it as a done deal.

7) Tell them you haven't yet gone deep enough inside the target's books to be able to quantify the hard numbers on the potential gains from the deal.

8) Say that your passionate belief in the fast-growing market you have chosen is evidence enough for your investors to trust you.

9) Then ask them to give you $20bn in cash to finance your acquisition.

10) Leave a big delay between the time at which you announce your acquisition to the market to ensure the stock you plan to issue to finance the deal is hostage to its share price.

11) Agree to pay the parent's target company a multi-million dollar break-fee, but don't insist on having one to protect yourself against a counter-bidder.

12) Find a reputable clairvoyant and consult them every day until the deal closes.

What a load of old cobblers! If a long-term deal is worth doing at $30, its worth doing at $35. Less profitable for the purchaser, yes, but a 15% price differential should not be a killer on this sort of deal which is more about long term strategic positioning than short term profits. The City wouldnt recognise anything long term if it hit it in the proverbial mouth.

The reality is that the US Government which owns AIG as a result of the banking crisis is desperate to flog this business and, if they have turned down a price chip, its only because they are confident they can sell it for more. The Pru CEO has ended up negotiating by committee - always subject to the whim of some overpaid underskilled fund manager.

Having spent 20 years in the City, I know that, generally speaking,the brightest go to the big Investment banks whilst the laggards end up working as fund managers. It is difficult to believe that they have made an informed choice with our pension money in this case.

We have missed an opportunity to grab a global strategic position for one of our companies. And no doubt you'll whinge, Robert, next time a chunk of UK PLC is sold off to a foreign buyer.

This comment was removed because the moderators found it broke the house rules. Explain.

RiskAnalyst is right, of course. I was questioning the analogy, not the morality. It is certainly true that underwriting fees and, notably in the case of the failed Pru deal, 'drop dead' fees are astonishing for the actual risk & effort taken on.

That all goes to prove what a cosy club banking really is. Porter's 5 Forces (for those who are familiar, apologies if not) would suggest that the business of underwriting capital raising would, in a free market, be overrun with new entrants chasing the incredible profit margins of this business and, as a result, make the industry trend to a lower level of profitability. Sure, barriers to entry are high at the top end (though syndication reduces those) - but not every capital raising is for this amount - but I don't even see that much competition in the mid- and lower-market.

That that hasn't happened suggests that the market is not free. I often wonder why SWFs haven't got into the business of backing a wholly owned investment bank focussed solely on the business of u/w capital raisings globally.

I'm off to Abu Dhabi to pitch it...RiskAnalyst should come with me.

I have on a number of ocassions on previous blogs cast doubt on the financials behind this deal.

It does leave the new Chief Exec in a rather awkward position to put it mildly. Mr Thiam never seems to stay long anywhere as his resume from the Pru's website shows



The one problem with aiming for the stars is that there is a long way to fall if everything goes wrong.

28. At 4:02pm on 01 Jun 2010, Matt wrote:
RiskAnalyst is right, of course. I was questioning the analogy, not the morality. It is certainly true that underwriting fees and, notably in the case of the failed Pru deal, 'drop dead' fees are astonishing for the actual risk & effort taken on.

That all goes to prove what a cosy club banking really is. Porter's 5 Forces (for those who are familiar, apologies if not) would suggest that the business of underwriting capital raising would, in a free market, be overrun with new entrants chasing the incredible profit margins of this business and, as a result, make the industry trend to a lower level of profitability. Sure, barriers to entry are high at the top end (though syndication reduces those) - but not every capital raising is for this amount - but I don't even see that much competition in the mid- and lower-market.

That that hasn't happened suggests that the market is not free. I often wonder why SWFs haven't got into the business of backing a wholly owned investment bank focussed solely on the business of u/w capital raisings globally.

I'm off to Abu Dhabi to pitch it...RiskAnalyst should come with me.

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Fair comment Matt.

How about we pitch a SWF to donate a little cash, so that we can manage a fund that distributes its investment returns purely to charity. Wouldn't that be great? With all the money floating around in the world's capital markets, 1% of that would help bring an end to the misery of millions of people.

An hour to moderate a comment? Really?!

Again, in some ways similar to the BP fiasco ... most peope, with an ordinary private pension will hold both BP and Pru shares/pension units and so our pensions take another battering ...

Robert, do you smell a trend of a double dip or further funding liquity problem? Pru deal off, SSE withdraws interst, even Red Knights in retreat, some further substantial job losses announced this week. Yes there are some positives but have the new residents at nos 10 and 11 already had their honeymoon with the economy? Looks like some good old digging from a reporter required.