Prudential PLC will have to put its American dream on ice for a while if its long-shot bid for American General Corp. fails, analysts say.
The London insurers plans were thrown into confusion last week by a higher bid from American International Group Inc.
The rationale for Prudentials deal was that its own Jackson National Life Insurance of Lansing, Mich., didnt give it the critical mass it wanted in this country, said Nic Clarke, an investment analyst for Charles Stanley & Co. in London.
Now Prudential will have to find some other way to expand here or withdraw and focus on Asia and other markets, Mr. Clarke said.
Steve Colton, a spokesman for Prudential PLC, said Monday that it has not given up hope of buying Houston-based American General and remains committed to expanding in this country.
But analysts say the deal is doomed. The Prudential stock bid that American General accepted in March, then worth $26 billion, is now worth just $20 billion. The offer from New York-based American International is worth $23 billion.
Jackson National Life, which Prudential has owned since 1986, has $40 billion of assets. American General would have brought it $120 billion more and more importantly the products, the size, and the alternative distribution channels Pru sought, said Andrew Crean, an London-based insurance analyst for Citigroup Inc.s Salomon Smith Barney.
Pru was looking to build scale, and thats what American General gave it, Mr. Crean said.
Though American General is an enormous bank distributor of annuities, Roger Doig, a London-based insurance analyst at J.P. Morgan Chase & Co., said the bank channel may less important to Pru than it had led others to believe when the deal was announced.
Alternative distribution is important to have, but cash flow stability of earnings is much more important, Mr. Doig said.
Mr. Clarke also said distribution channels are secondary to expanding the business.
Prudential people spoke so much about distribution because they were looking for a reason to justify the deal, Mr. Clarke said. They made this play because they wanted to be in the big leagues with one deal. Too bad the market thinks they overpaid.
If the American General deal fell through, Prudential would have a hard time making a comparable deal soon, Mr. Crean said. Prudential officials are going to have to let their stock price recover, he said. Theyll regain credibility, and Id guess that within a year, theyll be back at it.
But Robin Savage, an insurance analyst for WestLB Panmure in London, said Prudential will be hard-pressed to find another target like American General.
Prudential said last month, when they announced the deal, that they looked at all the options and that American General was the best fit, Mr. Savage said. All the other companies were either too small or werent a good fit. I cant see them rushing out, after making all these comments, and buying someone else.
Charles Coyne, also an insurance analyst at WestLB Panmure, said Prudential should hibernate for about six months before it examines its options.
Before Prudential announced the deal it was rumored to be interested in buying Boston-based Liberty Financial Cos., which owns the Stein Roe & Farnham mutual fund firm as well as the bank annuity distributor Keyport Life Insurance.
But Liberty, with $66.6 billion of assets, is only about half the size of American General and would not give Prudential what it needs, Mr. Coyne said.
Liberty doesnt have the same mass in alternative distribution channels as American General, he added.
From Our Archive