Prudential's bid for AIG's Asian assets seems less than prudent

Finally, the Prudential's share price bounces. Unfortunately, yesterday's gain was a mere 2.5% to 500p. The Pru is still down 17% since it announced on Monday its grand plan to pay $35.5bn (£23bn) for AIA to advance its ambitions in Asia. Does 17% amount to a vote of no confidence in the deal? It's far too early to say that since Tidjane Thiam, the Pru's chief executive, has a full two months to woo his shareholders before he has to publish a prospectus. It is also true that there is nothing like the prospect of a gigantic rights issue to kill short-term demand for your shares. Even so, the fall might be twice as severe as the Pru's management would have hoped. This is starting to look serious. So it should. The word in the investment banking world is that AIG had in mind a flotation value of $25bn to $27.5bn for AIA. If that is correct, it was adventurous for the Pru to pitch in at $35.5bn. So one way to think of the £3bn plunge in the Pru's valuation is as the market's calculation of the size of the overpayment for AIA but adding back the benefits of combining the two companies. If the net figure at the end of April is still minus £3bn – as a 500p share price suggests – Thiam is not winning many plaudits. Many shareholders might prefer to call the whole thing off and, they would hope, see the Pru's share price return to last week's level of 600p. It requires no genius to see that Asia is an attractive place to sell savings products. But Thiam has failed to explain why buying AIA is the best way to skin that cat. The Pru already has a very successful business in Asia. Concentrating on competing with a destabilised company such as AIA, and saving $1bn in bid costs in the process, looks a perfectly credible and lower-risk way to approach the Asian opportunity.