Bobby Yip/ReutersTidjane Thiam, chief executive of Prudential of Britain.
As Prudential of Britain was planning an ambitious $35.5 billion bid for one of Asia’s biggest life insurers three years ago, the company was worried about details of its deal leaking to the outside world.
That hyper-cautiousness, it seems, cost about $45 million.
On Wednesday, Britain’s Financial Services Authority fined Prudential £30 million for not informing the government of the insurer’s attempt to buy the AIA Group before word of the plans emerged in the press. The fine is one of the largest that the F.S.A. has ever exacted.
Prudential’s chief executive, Tidjane Thiam, was also censured. He will keep his post, the company said in a separate announcement.
According to the F.S.A., Prudential failed to disclose its intentions to pursue the deal during a Feb. 12, 2010 meeting to discuss the firm’s growth strategy. While Mr. Thiam spoke of intricate financial projections, he didn’t breathe a word about the impending deal.
Fifteen days later, word of Prudential’s plans began to emerge in press reports, catching the agency off guard and forcing it to consider its ramifications in what it called a compressed time frame.
“It is essential that firms give due consideration to their regulatory obligations at all times,” the securities watchdog said in a statement. “In particular, timely and proactive communication with the F.S.A. is of fundamental importance to the functioning of the regulatory system.”
Deal makers often speak of leaks as potentially damaging to the transactions they attempt to build, citing secrecy as key to holding highly sensitive negotiations.
Prudential appeared to take that to a new level. The firm initially planned to announce a deal by Feb. 15 of that year, and bankers at Credit Suisse urged Mr. Thiam to inform the F.S.A. by Feb. 3, according to documents published by the regulator.
But the firm’s board and management believed that the prospects of the deal were exceedingly cautious about the prospects of reaching a deal, even as they made progress in negotiating with AIA’s owner at the time, the American International Group.
Among Mr. Thiam’s chief concerns was that details of the talks could leak from any number of sources — including the F.S.A. itself.
Negotiations continued, with the timetable for an announcement slipping to March 2. By Feb. 26, however, Prudential became convinced that a leak was inevitable. Yet the firm didn’t reach out to its regulator until the afternoon of Feb. 27, hours after initial press reports.
The AIA deal, initially valued at $35.5 billion, would have transformed Prudential (which isn’t related to the firm of the same name based in the United States) into the indisputable leader within the Asian life insurance industry.
But it died after Prudential, facing enormous pressure from shareholders over the price, sought a lower price from AIA’s parent, the American International Group.
The financial burden that Prudential would have born — the firm had planned a £14.5 billion rights issue, the largest ever in Britain — worried not only investors, but regulators as well. The size of the planned takeover could have affected the stability of the country’s financial system, according to the F.S.A.
Prudential said in a statement that it acknowledged its disclosure failure and agreed to settle the matter for the good of investors. It added that Mr. Thiam had acted with the full knowledge and permission of the firm’s board, and would remain chief executive.
“We wish to draw a line under the matter, and to ensure our constructive relationship with our regulators remains good,” Paul Manduca, Prudential’s chairman, said. “The F.S.A. has determined that it should have been informed earlier about the fact we were contemplating the AIA transaction and we regret, with hindsight, not so doing.”
Article source: http://dealbook.nytimes.com/2013/03/27/british-regulator-fines-prudential-45-million/?partner=rss&emc=rss
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