Prudential Swallows American General in Largest Ever Insurance Merger

12 March 2001

UK-headquartered Prudential plc announced this morning that it has agreed to acquire American General Corporation, based in Houston, Texas. On the table is £18.1 billion ($26.59bn; 28.5bn euros) creating the world’s largest merger of insurance companies.

Despite portrayal as a marriage of equals, Prudential shareholders will be marginally more equal with 50.5% of the combined company, which Prudential’s Sir Roger Hurn heads as chairman. Robert M Devlin, chairman and ceo of American General, joins the main Prudential board as deputy chairman, and will also serve as chairman/ceo of North American operations, reporting to Prudential group chief executive Jonathan Bloomer.

The deal represents a massive US expansion for Prudential (contrary to common perception, the British company is unrelated to the Prudential Insurance Company of America) and is the biggest-ever transatlantic merger in the financial services sector.

Although placing Prudential on par with rival global insurance giants such as French-headquartered AXA Financial and Holland’s ING NV, the London stock market was unimpressed by the merger and Prudential’s share price fell by £1.02 (or 11%) to £7.95.

American General posted net income of $1 billion in 2000, with revenue and deposits totalling $22.37bn and assets of $120bn. Prudential’s statutory operating profit last year rose 8% to £840m, while operating profit (adjudged to be a more reliable performance indicator) fell 6% to £1.03bn, mirroring reduced expectations of profits from fixed-annuity policies sold in the USA.

It is clearly too early to determine what effect, if any, the merger will have on the two groups’ stateside advertising arrangements. AGC’s business is currently with Grey Global, New York, and Bernard Hodes Advertising of Chicago, while Prudential’s US advertising is said to be handled mainly inhouse – although its UK account is in the hands of Abbott Mead Vickers BBDO.

News source: Wall Street Journal