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From The Sunday Times

May 2, 2010

Pru in shock exit from UK and US

Iain Dey

(Julian Andrews/Sunday Times)

Tidjane Thiam, the CEO of Prudential.

Prudential is working on radical plans to sell off its British and American businesses in a move that would raise more than Pounds 10billion.

The giant insurer is plotting the sales as part of its attempted $35.5billion (£23.2billion) takeover of Asian rival AIA, a deal that has drawn fierce criticism from investors.

A sale of the group's British business would mean the Pru cutting historic ties — it started life 160 years ago in London - and fuel speculation that the company will move its headquarters to Asia.

City sources say the UK sale could be launched within weeks of the AIA deal being completed in the autumn. An auction of the US arm, which trades as Jackson National Life, may come in about a year.

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Prudential is not yet in talks with any party about a sale of either business, in spite of repeated overtures from Clive Cowdery, the insurance tycoon who runs Resolution, a quoted investment group.

Tidjane Thiam, Prudential's chief executive, had previously indicated that he would retain the UK business to maintain the group's credit rating. Britain generates most of the Pru's free cashflow, he has said.

A 1,000-page prospectus is due to be published by Prudential this week to support a £14billion rights issue required to secure the deal - one of the biggest by a British company. Analysts believe the document will show there is no justification for Prudential to own the British or American businesses.

The Asian operations of the new group are thought to be generating about three times as much cash as Prudential's UK operations. The cashflow from Asia should secure the group's credit rating and strengthen its balance sheet without the need for support from the British business, analysts said.

They value the British business at about £4.5billion and the American arm at about £6.5billion.

News of the potential sales should appease a group of Prudential shareholders who have been upset by the AIA deal. Investors were taken by surprise when it was announced, and baulked at the price being paid and the size of the rights issue. Prudential needs approval from 75% of shareholders to secure the deal.

Although Thiam has claimed to have the backing of his main shareholders, cracks have begun to appear in that support. Capital Group, the biggest shareholder with a 12% stake, was last week rumoured to be plotting a break-up bid as an alternative to a deal.

Market sources claim that Thiam was assured of the firm's backing in a showdown meeting last Wednesday. The new shares being issued to support the deal are expected to be priced at a 40% discount to the existing shares, which closed on Friday at 579p.

Prudential is launching share listings in Hong Kong and Singapore to attract investment from Asian investors. GIC, a giant Singaporean government investment fund, is one of the investors underwriting the rights issue.