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Shareholders Balk at Proposed Acquisition


The proposed merger of American General of Houston and Prudential PLC of London may be in trouble. When initially announced on March 12, the stock swap was valued at $49.52 per American General share. That equates to $26.5 billion based on the 10-day trailing average closing price of Prudential stock as of March 9. On word of the proposed merger, however, the price of Prudential shares dropped dramatically. Since the announcement, there has been considerable speculation by analysts as to whether the deal will be completed.

On the day the deal was announced, the price of shares of Prudential stock fell 12 percent. By March 21, Prudential shares were down more than 16 percent, trading at $10.99 in comparison to the $13.15 (both calculated at exchange rate for March 12) at which Prudential stock was trading prior to the announcement. With the sell-off, the value of the deal has fallen to about $19.7 billion, as of March 21. Initially, American General shareholders would have received a premium on their shares of about 28 percent. As of March 21, the premium was closer to seven percent, with American General shares valued at approximately $39.20.

If the deal, which was initially expected to close in the third quarter of 2001, is completed, the combined entity will be one of the largest insurance and financial services companies in the world with approximately $336 billion in assets under management. Prudential PLC would be the holding company for the combined businesses, with Prudential shareholders owning 50.5 percent of the new Prudential, while American General shareholders would own 49.5 percent.

The plan calls for Prudential's U.S.-based operations, Jackson National Life and PPM America, to be integrated with American General's. The board of directors would be enlarged to 18 members, six of whom would come from American General. Sir Roger Hurn would continue as Prudential's chairman, while American General's chairman, Robert M. Devlin would be invited to join the Prudential board as deputy chairman, and chairman and CEO of North American operations, according to American General, in a statement.

While Prudential shareholders have shown, through the market, great dissatisfaction with the terms of the merger, executives at both Prudential and American General say the merger is good for both companies.

"Our two companies are a great fit," said Jonathan Bloomer, group chief executive of Prudential, in a statement. "We have highly complementary business operations and we have pursued very similar strategies by broadening out our product ranges and distribution channels. Not only will this give us a leading position in the U.S., it also gives us the scale and financial strength to allow for continued expansion and faster growth in the other regions of the world in which we operate."

"As part of an international financial services powerhouse, we will benefit from increased scale and financial resources that will provide a solid foundation for accelerated growth and profitability," said Robert M. Devlin, chairman and CEO of American General, also in a statement. "It is also important to recognize that this merger is greater than just the size and scale it creates. It also represents an outstanding strategic fit for two organizations that share a common purpose for the future."