Prudential PLC, seizing on what it expects to be a demographic-driven boom in the U.S. annuity market, established itself as a potential force in the business with one swoop on Monday with a deal to acquire American General Corp.

The deal is structured to give Prudential a slender majority ownership of the combined company. Still, American General, which dwarfs Prudential’s existing U.S. holdings, is expected to be able to keep its way of doing business. That could mean American General’s management will control the business lines that are expected to produce a majority of Prudential’s new business opportunities. P>For Prudential, the move represents an instant way to gain scale and a complementary product line for its U.S. operations, which include Jackson National Life Insurance Co. The combined company would manage $336 billion in assets worldwide, $160 billion of which would be in the U.S. — $40 billion from Jackson National and $120 billion from American General.

The proposed acquisition, set to close in the third quarter, would put Prudential on a par with other European insurers that have become major players in the U.S. market, notably Dutch insurer Aegon NV, which bought TransAmerica Corp. in July 1999, and Axa Group, based in France.

“When one person turns 50 every seven seconds in the United States, the annuity and investment business is a great business to be in,” said Charles Coyne, insurance analyst for WestLB Panmure in London. “As far as a long-term move, Prudential just jumped to the top as far as European insurers in the U.S. are concerned.”

The deal, which had an announced value of more than $26 billion — tops in the industry’s history — was worth considerably less by the end of the day because Prudential’s shares tumbled 15% in London. Still, the size of the new company puts it in an elite class, ranking as the sixth-largest global insurer and the fifth-largest life insurer in the U.S.

The agreement also came at a critical juncture, said Cathy Seifert, equity analyst at Standard & Poor’s in New York. “The parent company had to make a decision to either acquire to get scale or get out [of the United States], and they’ve decided to get in.”

The United States would make up 57% of all new business for the newly formed Prudential PLC, according to the company. Much of that business would come from the sale of fixed and variable annuities.

Robert M. Devlin, chairman and chief executive officer of soon-to-be New York-based American General, said Jackson National and American General will complement each other, as Jackson National built a strong network of broker-dealer distributors of its annuities, and American General is a large seller of the same products through banks. Both American General and Jackson National are also players in life insurance.

American General also has a significant presence in consumer finance, though the division contributes a small share of profits relative to its other businesses, said analysts. American General’s 2001 estimated operating income in life insurance is $823 million, $761 million in its retirement business, which includes annuities, and $250 million in consumer finance, according to Jeffrey Schuman, life insurance analyst for Keefe, Bruyette & Woods Inc. of Hartford, Conn.

Jackson National, the 20th largest insurance company in the U.S., provides both investment and participating life insurance, as well as fixed and variable annuities and IRAs.

Under the deal, Prudential will own 50.5% of the merged group.

Mr. Devlin expressed confidence that the aging American market will lead to success for the company. “As more and more Americans approach retirement age, we will be best-positioned to help them deal with their growing concern that they are living too long, rather than dying too soon.”

Tom Bennett, an insurance analyst for BNP Paribas in London, said Prudential has acquired a competent company, but added that “this isn’t going to be ground-shaking.”

“When Axa bought Equitable Life, it absolutely transformed the company,” Mr. Bennett said. “At the time, there were stories written about how Axa was going to be destroyed. Those stories couldn’t be more wrong. What Prudential has done here isn’t as big, though it does make them a larger player in the U.S., obviously.”

Mr. Devlin added there would be some staff cuts, though executives from Prudential stressed that the combination is aimed more at growth than at opportunities for cost savings.

Analysts concurred with that reasoning. “This isn’t a move by them to squeeze out costs. It’s an opportunity to move into the most important financial market in the world, the U.S. market,” said Mr. Coyne. <

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