Britain's Pru buying American General

Analysts question whether the acquirer may be paying too much


LONDON - In the biggest trans-Atlantic insurance deal ever, Britain's Prudential PLC said yesterday that it had agreed to buy the American General Corp., the second-largest life insurer in the United States, in an all-stock deal that it valued at $26.5 billion.

The deal would propel the British group into the big league of global insurers. But as stock markets declined around the world yesterday, investors punished Prudential's shares, which fell by as much as 14 percent, cutting into the value of the deal.

Prudential, which has no connection to the Prudential Insurance Company of America, built its reputation in Britain as a solid and dependable insurer whose advertising icon - a salesman known as the Man from the Pru - betokened its reliability. But when yesterday's deal was announced, analysts immediately questioned whether the 153-year-old Prudential, a life insurance and asset management business, had been distinctly imprudent, particularly at a time when the American economy is slowing down.

"They are paying top dollar for a good business but at a very difficult point in the cycle," said Trevor Moss, an analyst with SG Securities. Alex Scott, from Barclays Stockbrokers, said, "It's a massive jump in scale. What they have to justify is the premium they are paying."

Prudential said it is offering 3.6622 of its shares for every one share in American General to create the world's sixth largest insurer and one of the biggest companies on the London stock market, with some $336 billion in funds under management and a combined market value of around $45 billion.

The deal would give Prudential 50.5 percent of the combined company, which was billed as a merger of equals. Prudential's chief executive, Jonathan Bloomer, would take charge of the group while American General's chief executive, Robert Devlin, would run Prudential's combined American operations, reporting to Bloomer. Prudential's American businesses include Jackson National Life and PPM America, which are to be integrated into American General, Prudential said.

The terms of the deal represented a 30 percent premium on American General's closing price Friday and valued the American company at three times its book value. British investors' first reaction was to shy away from the deal and Prudential's stock fell by 127 pence to a two-year low of 770 pence.

In New York trading yesterday, Prudential's American depository receipts tumbled $4.08, or 14.5 percent, to $22.22. American General's shares were up 55 cents to $38.80.

"The way they have structured the deal doesn't look good from a Prudential investor's point of view," said Moss of SG Securities. He said the drop in Prudential stock yesterday lowered the value of the bid to American investors, who stood to gain "not much of a premium and in exchange are getting Prudential paper they don't want."

The fall in Prudential's stock price yesterday lowered its offer to around $41 a share, from $49.52 based on Friday's closing prices.

Prudential will overtake CGNU PLC to become Britain's biggest insurer when and if the merger is completed. In seeking a trans-Atlantic acquisition, it is following other European insurers such as Aegon of the Netherlands - which bought the life insurer Transamerica Corp. for $9.7 billion in 1999 - to move into a global league dominated by players such as Axa of France and Allianz of Germany.

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