June 7, 2010 / 4:42 PM / 9 years ago

Prudential to shun M&A after failed AIA bid

LONDON (Reuters) - UK-based insurer Prudential (PRU.L) said on Monday it would avoid big merger and acquisition deals in the wake of its failed bid for AIG’s (AIG.N) Asia-focused AIA unit, pledging a period of stability instead.

Raised lettering in the brickwork of the former Prudential Assurance building casts shadows in the City of London May 28, 2010. REUTERS/Luke MacGregor

Prudential will concentrate on growth from within, although it would still consider small-scale takeovers to boost its presence in fast-growing Asia, its chairman, Harvey McGrath, told shareholders at the annual general meeting in London, where several shareholders expressed their anger over the AIA bid.

“One of the lessons we’ve learnt is that in the post-crisis world we live in, doing large cross-border acquisitions in financial services is going to be very difficult,” McGrath said.

“I think we’ll continue to seek to grow this business organically. You should expect us to look at bolt-on acquisitions.”

Prudential management was forced into a humiliating withdrawal from its deal to acquire AIA last week after its shareholders baulked at the $35.5 billion agreed price and AIG rejected a reduced offer.

The failed bid, which cost the insurer 450 million pounds ($652.9 million) in fees, has prompted calls for the company to consider radical moves to boost shareholder returns by selling off parts of its business.

But Prudential’s McGrath dampened expectations of a break-up, saying there would be no imminent disposals.

“We do not think we need to in the very near term kneejerk into any asset sales or other fundamental restructuring,” he told investors.

Prudential, made up of fast-growing U.S. and Asian divisions complemented by a mature but cash-rich UK arm, has long been the subject of break-up speculation.

Advocates of a break-up argue that Prudential’s flagship Asian unit would be worth more if it were spun off as a standalone company, although some analysts say it is too early for the insurer to consider getting rid of its most promising asset.

Barry Stowe, the head of Prudential’s Asian business, told Reuters that selling or floating the Asian business might harm shareholder returns at this stage.

“These concepts are always considered, but to date we’ve not been convinced that it would be in the shareholders best interests because we’re concerned that it might actually represent value leakage.”

Stowe added that Prudential’s appetite for takeovers in Asia will be naturally constrained by a lack of buying opportunities.

“You don’t see lots of opportunities in Asia because there are a lot more buyers than there are sellers, but to the extent that there are bolt-on opportunities we would look at those with a lot of interest,” he said.

The most recent bolt-on acquisition completed by Prudential was its $307 million takeover of the life insurance business of Singapore bank UOB (UOBH.SI) in January.

($1=.6892 pounds)

Editing by Greg Mahlich

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