AIA is the Asian arm of AIG, the financial giant that was too big to fail, and bailed out by the US government in 2008.
But Prudential already has a presence in Asian insurance markets, and this acquisition would add another 20 million clients to its customer base. The resulting juggernaut could become a considerable force in what is still an expanding region: Prudential estimates that the move could add $700m to its revenues, as it taps into the 40 per cent of global growth in life business that is expected to emanate from the region over the next five years.
Cost synergies will be hard to come by, and these are not thought to be substantial. The Pru insists, though, that its Asian operations are run more efficiently than those of AIA, and that its business model will of itself generate more income. It is also likely that some of the assets of the combined business will have to be sold off due to local regulatory constraints: in India, for example, the authorities have already indicated that they will not continue to license both Prudential and AIA after the merger, and some major rationalisation will be necessary.
Financial Express research carried out on 9 March identified 21 retail investment funds that carried Prudential shares in their top ten holdings. A week later, 16 March, this had risen to 36 funds that had exposure to the Pru.
The biggest position is taken by the quirkily named Elite Henderson Rowe Dogs of the FTSE 100 fund. Its 7.75 per cent exposure represents a confident bet on Prudential, and outstrips by some margin the next highest weighting, 4.8 per cent, taken by the specialist Jupiter Financial Opportunities fund.
Performance of funds over 1-yr
Source: Financial Express Analytics
The 'Dogs' fund is arguably unkindly named, its purpose being to seek out solid blue-chip businesses that continue to generate appreciable dividend income for their shareholders. They just happen to be overlooked at the moment in a marketplace that is not infallibly efficient in pricing the value of companies. This approach appears to have borne fruit, by delivering a yield of 4.5 per cent, and a total return of 48 per cent in the 12 months to 15 March.
Jupiter's total return of 28 per cent in the same period has not been quite so prodigiously productive in the short-term - and it is important to note that Henderson Rowe's offering has not yet built up a long-term track record - but it can claim the top position in this group over 10, five and three years.
Investors warming to the Prudential proposition have no shortage of funds to choose from, and the ones we discuss here have been pinpointed because they carry the biggest exposure.
The 'Dogs' approach, though untested over long periods, is interesting in that the bet on Prudential, in the scheme of things, represents a bolder endorsement than we can find among the other Pru takers.
Jupiter has appeal due to its long-standing record, and a relatively positive stance on Prudential's prospects in this venture.
The $35.5bn price tag for AIA is to be raised by a combination of a cash call and the issue of new stock. The transaction has been underwritten by Credit Suisse, JP Morgan Cazenove and HSBC Holdings.
This article first appeared in the Daily Telegraph.