Pru investors unlikely to get desired result

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Investors in Prudential are likely to get one pleasant surprise next week – a big cut in the estimated costs of the life assurer’s collapsed bid for AIG’s Asian business.

But anyone hoping for a strategic or management overhaul with the life assurer’s interim results will be disappointed.

The Pru estimated a £450m bill for advisory and currency hedging fees related to its $30bn-plus (£18.8bn) takeover bid for AIA, which was abandoned at the start of June, leading to investor demands for senior heads to roll.

However, it has been working on clawing back some of those fees from advisers such as Credit Suisse, according to people familiar with the deal, which along with other measures should help it cut its bill for the deal to materially less than £400m.

The Pru, particularly Harvey McGrath, chairman, and Tidjane Thiam, chief executive, came under severe pressure in the wake of AIG’s rejection of the UK company’s move to renegotiate a lower price for AIA.

The fact that Mark Tucker, a former Pru chief executive, has now taken over at AIA and plans to bring in strategic investors, oversee its initial public offering and turn it into an independent, competitive Asian life assurer, means that investors will be looking to the Pru’s leadership to be even more assured about where the business goes next.

Profits are expected to be good – as have been those of Legal & General and Aviva who reported their half-year results this week.

Consensus analyst estimates from the company put IFRS operating profits at £724m, roughly half the profits made for the whole of 2009.

Analysts contacted by the Financial Times also expect to see the interim dividend rise between 5 per cent and 7 per cent.

The sales figures are mostly already known as the Pru gave a five-month trading update at its annual meeting on June 7, where it faced strong criticism from some small investors over its attempt to buy AIA.

The Pru said then that total sales were up 27 per cent at £1.36bn, with Asia continuing to see strong growth, rising 33 per cent to £579m.

“Following the AIA deal, strategy will be under the microscope, and in particular whether or not management revert to the historic ‘plan A’ or indicate a change of direction,” said Barrie Cornes, analyst at Panmure Gordon.

Some investors still expect to see Mr McGrath step down and a new chairman come in to overhaul the board and review the chief executive. For the most part, however, they admit this seems very unlikely to happen quickly, although they still want to see movement towards management changes by the end of the year.

The high estimated costs attached to the failed AIA bid, which outstrip the cash cost of the dividends paid during the last financial year, became a focus of some investors’ ire. So a significant reduction should help to rebuild some bridges, especially when some observers think recent currency movements could have added to the bill.

But it is hardly the rabbit out of a hat that some say the Pru would have to produce to make people forget about AIA.

Some investors say that when they meet the company following the results, they will leave it in no doubt that they expect board changes. It may start with James Ross, the senior independent director, but many of the top investors in the Pru are united in their belief that the chairman should go, says one large investor.

“It may seem quiet at the moment, but it doesn’t mean that nothing is happening,” says another leading shareholder. “To get effective corporate engagement, we need to give the board time. But come the autumn the company will be left in no doubt about investors’ determination on the need for change.”

This change could be as much about strategy as leadership.

The big question is whether its “plan A” is any longer enough, or whether the move to go after AIA in the first place highlighted something missing from the Pru’s prospects.

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