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Prudential share price slumps 20%

Prudential’s share price has slumped 20 per cent since news of its acquisition of AIG’s Asian Arm AIA.

The markets have reacted badly to the announcement on Monday of Pru’s plans to take over AIA in a deal worth £23.5bn, £14bn of which it intends to raise through a rights issue.

Since last Monday 22 February, Pru’s share price has plunged 20 per cent from its one-month high of 612p to 487p at 8.45am today.

Meanwhile, Fitch Ratings has placed Prudential on negative watch as a result of its plan to acquire AIG’s Asian subsidiary, AIA.

Fitch says it is concerned about the risks in executing such a large transaction as well as Prudential’s reliance on significant profitable growth of the businesses that would be acquired.
 
The agency expects the new debt funding will lead to a reduction in Prudential’s interest coverage, at least in the short term, which might add to the pressure on its ratings.

AIA’s embedded value at November 30, 2009 was £13.3bn. Fitch says following an acquisition of £23.5bn, there would be a significant amount of goodwill on the balance sheet.

Associate director Clara Hughes says: “The strength of the newly-combined entity’s balance sheet would be heavily reliant on the value that Prudential could generate from combining the operations and from future insurance policy sales through AIA.

“Ultimately, this will be driven by Prudential’s ability to increase operational efficiency when integrating the two businesses, the pace of growth of GDP and of the insurance markets in which AIA operates, and the amount of competition the group would face.

“These factors are highly uncertain.”

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. I think this is such a good move for prudential you should be jumping on this band wagon asap, the shares lost over £1.20 today, get on board now, buy buy buy, even more if you get a rights issue buy buy buy as well, the asian market is huge. This is the smartest move by a UK insurer in 50 years. Aparantly UK will be cash cow generator to invest in a highly lucrative market in asia. don’t downgrade and worry upgrade and get on board before too late

  2. goodwill……i’m hoping the pru share price goes down more in the wake of market nervousness, For the first time in a long time Pru is potentially going to issue a rights issue of shares for more than just propping up its balance sheet. If anyone knows the asian market its Pru. From Mark Tucker the previous CEO toTidjane Thiam. These guys know where the growth market are. Its the first time in a long time this sleeping giant has flexed its muscles. Adviser may not like pru, i think the investment product have outperformed the market….if your not on board then it will be like missing out on investing in the I Pod.

  3. I have serious concerns about this group!
    In the words of Nigel Farage: Who are you and what do you do? The Pru, it seems to me is the biggest group who never was, a ship without a rudder!

    Here we have a group raising more money by a rights issue than they have in assets. In other words they expect investors to fund this adventure and place their confidence in the skills of the might Pru.

    Maybe this is just what they need but as far as the UK market is concerned it seems to me the Pru just don’t have a clue!

  4. “As far as the UK market is concerned, it seems to me the Pru just don’t have a clue!”

    Is that before or after you reviewed Pru’s annual report? Sales down 11% (less money about to be invested? Discuss.), operating profit up 12%.

    In terms of UK market, the Pru seem capable of making their money work quite well. This ties in with their recently announced WP fund performance, which is also better than their rivals.

    Perhaps you meant “The Pru don’t compete aggressively to win IFA business” – which is another thing entirely…

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