Prudential sets the consolidation ball rolling

UK-based Prudential has set the consolidation ball rolling in 2001 with the year’s biggest acquisition to date, snapping up US-based American General Corporation for about $A40 billion.

The figure is almost five times as much as the Commonwealth Bank paid for Colonial 18 months ago, Australia's largest financial services acquisition. It is also the biggest takeover of a US-based financial services group by a foreign company.

Prudential will pay for American General in a share offer which is about three times book value, compared with the 2.4 multiple ING Groep NV spent for US-based ReliaStar Financial last year.

American General will give Prudential more than 12 million customers and about $US120 billion under management in the US. The deal will make Prudential the biggest seller of annuities in the US with more 10 per cent of the market.

If the deal goes ahead, Prudential will be the sixth biggest life insurance group in the world. In the UK, the group will be larger than Norwich Union's UK-based parent company CGNU. Prudential will be about half the size of Germany's Allianz and smaller than France's Axa. Together, Prudential and American General will have a market capitalisation of $US45 billion and managed assets of $US335 billion.

Prudential and American General have been discussing the deal for the past four months.