Deals don’t come much bigger than UK
insurer Prudential’s $35.5bn acquisition of American International
Group’s (AIG) Asian subsidiary AIA Group. But the acquisition also
comes with “significant execution and integration risks” cautions
Hong Kong-based Sally Yim, a senior analyst with rating agency
Moody’s.
“The merger will involve two very large
multinational operations, and it will therefore demand a
considerable amount of management time to secure the efficiency of
a group with operations in Asia, the UK, and the US,” said Yim.
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AIA Group has operations in 15 Asian
countries.
Yim continued that Prudential and AIA Group
carry out their life insurance business mainly through tied agency
forces in Asia.
“We believe that the two will have to align
their agent compensation structures and product suites,” she said.
“The companies will also have to come up with clear strategies to
manage and integrate these two large agency forces, which have been
head-to-head competitors historically.”
On a positive note, Yim said the deal will
enhance Prudential’s market position and give it leading positions
in Hong Kong, Singapore, Malaysia, Indonesia, Vietnam, Thailand and
the Philippines.
“The merger would also make it more difficult
for the smaller players to compete, given the combined entity’s
dominance,” she added.
The acquisition comes at a time when Prudential
is riding high in Asia, having reported record fourth-quarter 2009
sales of £1.26bn ($1.89bn) on an annualised premium income basis.
In the full year, new Asia business profits were up12% to £713m
compared with 2008.
Tidjane Thiam, Prudential’s recently appointed
CEO, has also left no doubt that insurer’s growth was to be driven
by expansion Asia. The objective, he proclaimed in January, was to
up the proportion of Prudential’s business from what he terms “the
group’s future growth engine,” from 50% to 80%.
Thiam termed acquisition of AIA as a “one-off
opportunity to transform the growth profile of the group”.
The combination of Prudential and AIA will
create “a sector powerhouse” in Asia, he added.
