Britain's Prudential Plc agreed to buy American General Corporation for $22.3 billion (#24 billion) yesterday in the largest-ever insurance deal that will make the British life insurer No. 1 in the massive US annuities market and catapult it into the global insurance super league.
Prudential, which is not related to US life insurer Prudential Insurance Co. of America, follows other European financial groups Aegon NV, ING Groep NV and Axa SA in buying a big presence in the lucrative US retirement savings and life insurance market.
"Putting the two together really does give us a tremendous scale position in the United States and really does cover the waterfront and offers all of the products for that ageing profile as they seek savings and retirement products," said Prudential's chief executive, Mr Jonathan Bloomer.
For the last few years US life insurers have seen a revolution in their business as the "babyboom" generation has switched from buying life insurance to annuities, which pay out a regular sum after retirement, instead of a lump sum after someone dies.
"The transaction makes us the leading provider of all annuities in the US," Mr Robert Devlin, American General's chief executive said. "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," said Devlin.
The deal also makes the combined group the No. 6 global insurer, and makes it the fifth-largest in US life insurance and No. 3 in US consumer lending.
Under the deal, Prudential would end up owning 50.5 percent of the merged group, which would have a market value of more than $40 billion, with about $336 billion in assets under management and premium income of about $4.8 billion.
The deal is the largest pure insurance deal since Warren Buffett's Berkshire Hathaway paid out about $22 billion to buy reinsurer General Re in 1998.
Investors took fright at the all stock-deal, saying Prudential was overpaying. Prudential's shares closed down 125p sterling, nearly 14 per cent, on the London Stock Exchange.
"The price is ludicrous for assets that are not yet clear. They are paying three times book value which, even for a 15-20 percent return on equity, is pretty generous," a European fund manager said. "Shareholders are disquieted, there is no guaranteed success for this deal," he said, adding that a more appropriate price would have been twice book value.
