Could A Merger Between Standard Chartered PLC And Prudential plc Be On The Cards?

As Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US) struggles, predators are circling the Asia-focused bank. Indeed, after the bank’s recent poor performance, Standard’s share price has crashed to a low not seen since the financial crisis. 

What’s more, there is talk of in-fighting between management and top shareholders. It really does appear as if Standard is floundering.

As a result, it has been rumoured that peers are seeking to take advantage of the bank’s troubles by making an opportunistic bid for the Asian giant. So far this year, it has been rumoured that banking industry giants such as J.P. Morgan, Australia and New Zealand Bank, Santander and Barclays have all weighed-up making an offer. 

However, there is a chance that Prudential (LSE: PRU) (NYSE: PUK.US) is now considering a merger with the troubled bank, in order to boost its Asian growth prospects.

A strong relationship

Prudential and Standard have a strong relationship and I’m not just talking about a strong business relationship. The chief executives of both companies are considered to be good friends, often seen socialising together, discussing Asia’s economic prospects. 

Additionally, the two companies are already working together, with Standard selling Prudential insurance products across Asia, to an increasingly affluent client base. This is an invaluable partnership for both groups and has been a key driver of growth for Prudential. 

And Prudential has big plans for its expansion across Asia. The group’s CEO, Tidjane Thiam has stated that the company’s growth in China is “only just getting started”. It’s likely that Standard will remain a significant part of Prudential’s Asian growth strategy.

Will a deal go ahead?

Standard’s recent under performance has seen the bank’s valuation fall to one of the lowest levels in its peer group. Meanwhile, Prudential’s out performance has seen the insurer’s valuation rise to one of the highest levels in its peer group.

As a result, Prudential’s market capitalization is now around 20% larger than Standard’s. So if a deal went ahead it’s likely that Prudential would be the buyer. 

However, due to the similar size of the two companies the deal would have to be organized as a merger, most likely an all stock merger. Based on Prudential’ performance over the past decade, I’m sure Standard’s shareholders would be more than willing to receive a chunk of Prudential for their Standard Chartered shares. 

Further, Prudential may get a chance to acquire a chunk of Standard at a low price before unveiling a full bid. Indeed, around 18% of Standard’s shares are owned by Temasek, the Singapore state investment agency. Temasek has previously look at a selling its Standard stake and now remains open to “offers at the right price”. 

There’s no telling if Prudential will make an offer for Standard. Nevertheless, there look to be many benefits to be had from a deal. 

And, even if Prudential and Standard Chartered don’t merge, Prudential remains an attractive investment in its own right, and the company’s dividend payout continues to rise.