Broker snap: Pru must convert the doubters

18th May 2010 11:19

Prudential launched its delayed £14.5bn rights issue yesterday, but needs a huge PR drive to convince shareholders' the cash call to fund its purchase of AIA Group is worth backing.The insurer must win the support of 75% of shareholders at its General Meeting on 7 June which can "in no way can be taken for granted", says Charles Stanley.Investors were already wary about the complexity of the acquisition, so initial opposition from the Financial Services Authority did bosses no favours."With certain large investors declaring their anxiety about the deal, management will need to work hard to make sure that the vote is passed on 7 June," thinks analyst Nic Clarke."We understand that given the adjustments that were required to be made to the funding structure of the deal, to appease the FSA, the deal will not now be earnings enhancing by 2013. This once again puts the cost of the acquisition firmly in the spotlight."He believes there are clear merits in doing the deal, which would be "truly transformational", with the enlarged group generating around 60% of its profit in Asia.It would also enjoy no.1 market share in Hong Kong, Singapore, Malaysia, Thailand, Indonesia, Philippines, Vietnam, China and India. "Sales growth expectations are significantly greater in these countries than the developed countries," adds Clarke. "And the Pru would expect to generate over a billion dollars in synergies and double its pre-tax profit from Asia in 2013."Charles Stanley says hold on for now, but will include a recommendation with its rights issue note should the deal be approved.