Prudential of Britain to Buy American General

Prudential is buying American General Corp. for about $22.5 billion in stock in a deal that would make the British company one of the world’s largest insurance concerns and greatly expand its position in the United States.

The proposed acquisition by Prudential, which is not related to Prudential Insurance Co. of America, was lauded by analysts.

“Strategically, I think it’s a fantastic deal,” said Sabra Brinkmann, an analyst with Keefe, Bruyette & Woods Inc. in New York.

“American General is determined to be the largest annuity company in the country, and this gets them there. Prudential wants to diversify [its] geographic reach, and this does that for them,” Brinkmann said. “With one fell swoop, you’ve accomplished two major strategic objectives.”

Brinkmann said that the life insurance industry in the United States is too fragmented, and that companies need to be bigger to compete successfully for customers and investors. The deal puts Houston-based American General in that league, she said.

American General, one of the nation’s largest insurance and financial services companies, is a good takeover candidate because it holds leading market positions in fixed and variable annuities, said Joanne Smith, an analyst with UBS Warburg.

Prudential shareholders’ initial reaction to the transaction was negative, pushing down the worth of the deal from its initial value of $26.5 billion.

U.S. shares of Prudential fell $4.08, or 15%, to close at $22.22 on the New York Stock Exchange. The company’s shares had fallen 14% on the London Stock Exchange.

Analysts attributed the decline to fears that the company was paying too high a price and that many American investors might not want to hold shares in a British company.

Under the agreement, each American General share would be exchanged for 3.6622 Prudential shares, valuing American General at $49.52 a share, a premium of nearly 30% based on Friday’s close of $38.25.

American General shares rose 55 cents to close at $38.80 on the NYSE.

The combined company would use the Prudential name and have a market value of about $45.3 billion, with $336 billion in investment funds under management.

Prudential plans to fold its existing U.S. businesses, Jackson National Life and PPM America, into American General’s much larger operation. The enlarged company would move its U.S. headquarters to New York.

Prudential and American General acknowledged that the deal would mean a loss of U.S. jobs. Jackson National, which is based in Lansing, Mich., employs 1,700 people. American General has 16,000 employees.

Prudential shareholders would own 50.5% of the combined company, and American General shareholders would own the remaining 49.5%. Prudential said it expects the deal to be completed in the third quarter, subject to shareholder and regulatory approval.