Tidjane Thiam’s AIA Scheme Falls Flat at the Pru

Stop Press

Tidjane’s plan to take over AIA, the Asian arm of AIG has collapsed. This news adds a postscript to the following unpublished account of the plan and of the Pru’s leader Tidjane Thiam. It raises questions of leadership and strategies for opposing a plan for major corporate change.

Original Post

Today’s news [2nd June 2010] reveals a group of active shareholders, The Prudential Action Group had been working to block the proposed bid, believing the price being offered was too high.They Prudplanned to oppose the deal at a shareholder vote due to be held on 7 June.

The Prudential Insurance group has a tradition of reliability built from generations of agents providing insurance and savings schemes for the poorest families in England. The new man from the Pru is helping create a new global organization with an audacious bid for AIA.

Tidjane Thiam could not be further from the image of businessman in charge of a traditional English financial institution. The French-Ivorian son of an Ivorian diplomat was educated as an Engineer in France where he won top grades, and later took an INSEAD MBA. His subsequent work at McKinsey ended with an invitation to join the Ivorian government, but political turbulence ended his ministerial career and he returned to business life at Aviva. When Richard Harvey stepped down as chief executive of Aviva, he was tipped as a possible future head.

Robert Peston evaluated the bid and the new man from the Pru. The BBC’s hard-to-impress financial editor, described him in ways he saw as different from the norm.

“I’d not met Tidjane Thiam, the chief executive of the Prudential, till I interviewed him yesterday. And unlike many business leaders I encounter, for whom the expression charmless nerk [does he mean nerd?] was probably invented, it’s not hard to see how he has reached the top: he’s persuasive, amusing and self-deprecating.”

The article goes on to examine Thiam’s plan to obtain finance for acquiring AIA, the Asian arm of the ailing finance giant AIG.

“As if you didn’t know, if you want serious long-term growth, there’s no better place to go shopping for business assets than Asia. And as for the putative treasure sought by the Pru, AIA, it’s at what Thiam describes as an “inflexion point”. Which means that AIA’s profits are soaring, because of a combination of recovery in the Asian economy and the great sense of liberation of its local management that they’re soon to be freed from the stigma of being owned by AIG, the US insurer that crashed spectacularly in late 2008”.

Peston is suspicious of the promised added value of mega-mergers. He recalls the hubris which followed the enthusiasm of Fred Goodwin of Royal Bank of Scotland and John Varley of Barclays regarding the acquisition of the Dutch bank ABN. He is not alone in his concerns. The Daily Mail noted

Prudential admits it may have to spend £500m hedging against currency movements as it battles to complete its right issue. That is on top of £850m of adviser fees and other charges. The massive outlay associated with the £14bn capital raising won’t help win over investors. They are already lukewarm on the insurer’s plans to shell out £24.6bn. Details of the charges were revealed in a mammoth 936-page prospectus for the share issue [an opportunity] that will have got lawyers and advisers salivating.

The document highlights the vast amount of shareholder cash that Pru chief executive Tidjane Thiam is putting at risk with the audacious takeover of the Asian insurance business belonging to bailed out US firm AIG.

Contained within the document are numerous warnings about the potential risks of embarking on the AIA acquisition. The Pru warns that the problems at AIA’s parent company AIG could rub off on the firm and ‘harm the Prudential Group’s business and reputation’. It also said that integrating AIA could be tougher than anticipated and that targets could be missed. Change of control clauses could impact the business that the Pru is buying, and there could be hurdles with the myriad of overseas regulators which monitor the Asian businesses.

Shareholders of the Pru are called on to help finance the scheme and were scheduled to meet on June 7th [2010].

End Note

This, as they say, is not the end of the story but the beginning. Students of leadership might reflect on the lessons from the story both for a change-oriented CEO, and for minority shareholders opposing a board’s proposals

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3 Responses to Tidjane Thiam’s AIA Scheme Falls Flat at the Pru

  1. Paul Ballington says:

    Tudor,

    I posted on Tidjane and the Pru under your blog re-Robert Benmosche and AIG. The interesting situation of a change of leadership mid deal from the previous Pru CEO who set the deal-up. As Robert Benmosche is quite probably the right man to hold AIG together under current circumstances, then the incredibly talented Tidjane Thaime may nut have the same effect holding the disparate factions of the Pru and the City together that his predecessor and architect of the deal would have.

  2. Paul Ballington says:

    My original post follows:-

    April 27, 2010 at 7:41 pm

    Looking at AIG’s position, could it be argued that a strong, charismatic leader was essential to manage their major stakeholder, the US Government, otherwise a break-up and fire sale of assets, to the ultimate detriment of the more numerous small stakeholders would have been inevitable.

    I think the selection of Robert Benmosche was inspired as he can control the politicians whilst a well motivated team puts AIG back on its feet.

    I believe that the Prudential has acquired some of AIG’s Asian interests. The Pru’s shares plummetted on the anouncement of the buy, it will be interesting to see whether this was a wise move on the part of their CEO Tidjane Thiam or whether the deal will unwind without the tougher leadership of Mark Tucker, “a Chelsea fan, knew and recruited most of the Pru’s directors in the far east and was equipped with the locker-room jocularity needed to bring opposing groups together” (Phillip Inman the Guardian). Thiam on first examination looks to fit the New Leadership Model, but will he hold a deal based upon distributing leadership to a number of strong teams, and devised by Tucker?

    Are cracks already appearing?

    http://www.guardian.co.uk/business/2010/apr/27/aviva-prudential-break-up-shareholder

  3. Paul Ballington says:

    Latest development is that the original Prudential CEO, Mark Tucker, who brokered the deal has just been appointed to run AIG Asia, AIA. Oh what a tangled web they weave (a total Shakesperean misquote).

    Paul

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