The Financial Services Authority has ordered an inquiry into Prudential’s bid for Asian rival AIA, which collapsed last year leaving its shareholders with a £377m bill.
Pru officially called a halt to the ambitious $35.3bn (£21.3bn) deal in June last year after a series of embarrassing setbacks, shareholder opposition and stock market turbulence.
The City regulator has now told the Pru to commission lawyers to analyse the advice that the insurer was given by its investment bankers at Credit Suisse, JP Morgan and HSBC.
The FSA used its so-called “Section 166” powers to demand that Pru appoint a “skilled persons report”, which will be paid for by the insurer, but have its information shared with the regulator. Pru has appointed lawyers at Clifford Chance.
None of the parties involved, including the FSA and the Pru, would comment.
Such Section 166 reports can be used as the basis for any disciplinary measures that the regulator feels are necessary – but can also be used to rule out the need for any potential action.
The FSA has been commissioning more Section 166 reports as part of its efforts to be more intrusive, following the criticism it received following the banking crisis. Last year it commissioned 140 such reports, up from 88 the previous year and around the 50 the year before that.
From the moment the deal was leaked in March it was greeted sceptically by investors in the Pru, which needed to tap its shareholders for £13.5bn of cash to fund the deal.
But it took Pru two months to produce the full financial details behind the transaction and then incurred regulatory delay when the FSA questioned whether the enlarged group would have enough capital to withstand stressful market conditions.
Tidjane Thiam, the chief executive, had £50,000 docked from his bonus for 2010 as a penalty for the anger created among shareholders for the botched deal. His total pay deal still totalled £5m.
AIA was the Asian arm of the troubled US insurer AIG, which refused to lower the price to enable Pru to continue with the deal and eventually floated the business in Hong Kong.
In an unexpected twist in the failed takeover battle, Mark Tucker was appointed chief executive of AIA in July last year. Tucker was chief executive of the Pru immediately before Thiam, who had previously been finance director of the Pru.
Source : Guardian
