Prudential Affirms Plan Amid Rival Bid
Britain’s Prudential declared Wednesday that its plan to buy Texas insurer American General Corp. “remains in full force and effect,” but analysts predicted victory for a surprise rival bid by global insurance giant American International Group.
Prudential issued its statement Wednesday after AIG late Tuesday made an unsolicited $23-billion stock offer for American General, one of the nation’s largest insurance companies.
But AIG’s offer makes more financial and strategic sense than the Prudential bid and allows American General to be acquired by a company with a bigger worldwide presence than the London-based Prudential, analysts said.
“I think it’s no-brainer for American General shareholders,” said Steve Musser, an insurance company analyst at A.G. Edwards & Sons in St. Louis.
Prudential’s stock bid for American General was valued at $22.5 billion after it was announced March 12, but unhappy investors sent Prudential’s shares sharply lower in the following weeks.
By late Tuesday, when AIG’s proposal was announced, the value of Prudential’s offer had declined to about $20 billion.
Prudential stock recovered Wednesday in trading on the London Stock Exchange, bumping the value of its offer for American General back up to about $21 billion.
But Prudential stock rose because investors were betting its offer will fail, analysts explained.
American General must pay a $600-million breakup fee to Prudential, which is unrelated to the Newark, N.J.-based Prudential Insurance Co. of America, if it decides to combine with AIG. AIG Chief Executive Maurice “Hank” Greenberg told analysts in a conference call that the penalty had been factored into his offer.
Greenberg estimated the deal would produce savings of $200 million after taxes through the elimination of overlapping costs, whereas Prudential had estimated its purchase of American General would generate $130 million in savings before taxes.
American General, based in Houston, has been considered a good takeover candidate because it holds leading market positions in both fixed and variable annuities. The company has 1,350 offices in 40 states and 16,000 workers.
AIG, one of the world’s largest insurers, employs about 55,000 workers and has interests in consumer finance, aircraft leasing and data processing.
AIG, which controls SunAmerica and 21st Century Insurance in Los Angeles, would pay between 0.54 and 0.60 share for each American General share.
American General shares (ticker symbol: AGC) rose $5.20, or 14%, to $42 on Wednesday on the New York Stock Exchange. AIG shares (AIG) fell $3.37, or 4%, to $76.84, also on the NYSE.
