The FSA has fined Prudential £30m and censured its chief executive Tidjane Thiam for failing to inform the regulator early enough of the insurer’s bid to acquire AIG’s Asian arm AIA in early 2010.
The penalty is split between group business Prudential plc which was fined £14m and Pru’s UK arm The Prudential Assurance Company which was fined £16m.
The FSA says Pru failed to deal with it in an open and co-operative manner as it did not inform the regulator of the proposed deal until after it had been leaked to the media.
The final notice against Pru reveals the company contested it had breached listing rules and called the fine “unprecedented and grossly disproportionate”. Pru initially referred the case to the Upper Tribunal but later withdrew the reference.
Pru announced its proposed $35.5bn (£23.5bn) bid for AIA in March 2010. The deal was to include a $20bn cash consideration, funded via a £14.5bn rights issue. Had the rights issue gone ahead, it would have been the biggest ever in the UK.
Pru and AIG began formal discussions over the sale of AIA in December 2009 which progressed during January and February 2010. On 1 February 2010, Pru was advised by Credit Suisse to inform the FSA of the proposed deal well in advance of the transaction being carried out. Pru felt there was not enough certainty about whether the deal would go ahead, so did not approach the FSA. Pru was also worried about the news being leaked, and that the FSA might be the cause of such a leak. The company decided in the event of a leak it would look to protect its share price and avoid a lengthy trading suspension by issuing a “no discussions announcement”. If the deal was leaked when the deal was more certain, Pru would issue a “discussions happening” announcement and inform the FSA.
During February, talks between AIG and Pru progressed, and Credit Suisse continued to stress the FSA should be notified. Pru became aware on 26 February 2010 it was likely the deal was going to be leaked and a report on rumours about the deal was published on 27 February 2010. Pru informed the FSA that afternoon, and wrote to the regulator with its bid proposals the next day.
The FSA says Pru’s failure to inform the regulator of the deal was significant because it meant the FSA had to consider highly complex issues in a short space of time before deciding whether to suspend Pru’s shares.
FSA director of enforcement and financial crime Tracey McDermott says: “Prudential, led by Thiam as chief executive, failed to give due consideration to its obligation to inform the FSA of this transaction, which would have had a huge impact on the group had it gone through. That was a serious error of judgement for which Prudential is paying the price.”
Prudential chairman Paul Manduca says: “The board has decided to settle this matter in the best interests of the group and all its stakeholders. The FSA has determined it should have been informed earlier about the fact we were contemplating the AIA transaction and we regret, with hindsight, not so doing.”
The AIA deal collapsed in June 2010 after Pru shareholders forced the company to renegotiate the price to $30.3bn, which AIG refused to accept. The collapsed bid cost Pru £377m.
Philip J Milton & Company managing director Philip Milton says: “The AIA bid was clumsily handled by the Pru. It is fair enough it has been rapped on the knuckles for not following the proper processes.”