* Is Prudential's first major Asia M&A since failed AIA bid
* Thanachart earned 25 mln pounds after-tax profit in year
* Deal also involves 15-year exclusive bank distribution
By Clare Baldwin and Denny Thomas
HONG KONG, Nov 5 Prudential plc
has agreed to buy the insurance unit of Thailand's Thanachart
Bank for 368 million pounds ($590 million) in cash, turning up
the heat on rival AIA Group Ltd in the fast-growing
Southeast Asian market.
The British insurer's acquisition, which will double its
market share in Thailand, is its first major attempt to buy an
Asian company since Chief Executive Tidjane Thiam aborted a $35
billion bid in 2010 for AIA, the former Asian unit of American
International Group Inc.
Since then, Southeast Asia has emerged as a battleground for
AIA and Prudential, the region's two dominant insurers.
Prudential recently announced plans to open an office in
Cambodia and AIA last month said it had agreed to buy ING's
Malaysian insurance unit for $1.73 billion.
Premiums in six Southeast Asian countries are expected to
rise an average of 7.9 percent next year, according to a report
by Swiss Re, more than double the global life insurance average.
Prudential's purchase of Thanachart will help bolster its
regional presence and narrow the gap with AIA, which has a
dominant position in Thailand.
"They've got a very good Southeast Asia footprint, or ASEAN
footprint, and Thailand was the weak link," said Credit Suisse
Asian insurance analyst Arjan van Veen. "This goes some way to
reducing that weakness. Thailand is structurally,
demographically a very attractive market."
Thiam played down the rivalry with AIA and instead
emphasised the market's potential for growth.
"What's relevant is that 98 percent of people don't have a
life insurance policy," Thiam told Reuters, en route to a
meeting in Bangkok. "If you go into a market like this, you
don't really worry about the competition," he said.
Thanachart Life Assurance Co Ltd is a top-10 life insurer in
Thailand with around 1 million in-force policies, and the deal
will immediately double Prudential Thailand's market share,
Prudential said in a statement. The transaction is subject to
regulatory approval and is expected to close in the first
quarter of 2013.
Bangkok-based Thanachart Bank is jointly owned by Thanachart
Capital and Scotia Netherlands Holding BV, with
Thanachart Capital owning slightly more than half of Thanachart
Bank. Thanachart Bank bought Siam City Bank over the course of
several transactions in 2010.
Thanachart Capital shares jumped 5.3 percent at the open in
Bangkok on Monday.
Thiam said life insurance penetration in Thailand is only
about 2 percent, compared with an Asia average of 4 percent, and
12 to 13 percent in Europe. He said Prudential is paying about
14.3 times historic earnings for Thanachart.
Shares of Asia-Pacific insurers trade at a median 18 times
earnings, according to Thomson Reuters data.
Thailand's economy, Southeast Asia's second largest, is
forecast to grow 5.7 percent this year.
Prudential will initially pay 358 million pounds in cash,
and a further 10 million pounds 12 months after the deal is
completed to reflect the net asset value at the completion date.
A key aspect of the deal is a 15-year bank distribution
agreement with Thanachart Bank.
Thanachart Life earned a profit after tax of 25 million
pounds ($40 million) in the 12 months ended June 30, 2012.
Prudential in the past year has been emphasising its
presence in Asia amid speculation it could move its headquarters
out of London or potentially break up its operations by region.
In its 2011 annual report Prudential called Southeast Asia
its "sweet spot". It said its presence in Thailand was
"relatively small", with a market share of 2 percent.
AIA had roughly 30 percent of ordinary life premiums in
Thailand in 2011, Barclays insurance analyst Mark Kellock
previously told Reuters.
Other Southeast Asia insurance deals are also in process.
British insurer Aviva plc is selling its Malaysian
operations in a deal worth about $500 million, while Indonesia's
Panin Financial is selling a 40 percent stake in its
life insurance unit.
Prudential was advised by Morgan Stanley, while
Citigroup and Thanachart Securities jointly advised
Thanachart, sources told Reuters.