Saturday August 14, 2010. By The StarBizWeek.

Kuala Lumpur: Bank Negara has approved Pacific & Orient Bhd (P&O) starting preliminary negotiations with Prudential Holdings Ltd on the proposed divestment of an equity interest in its wholly-owned subsidiary, Pacific & Orient Insurance Bhd (P&O Insurance) to the latter.

In a filing with Bursa Malaysia, P&O said Bank Negara had granted the approval to the company via its letter dated Aug 11.

However, the detail about the proposed divestment is still unclear. The potential portion of stakes that Prudential is interested in P&O Insurance and the transaction value of the acquisition are the areas that interest the investors.

There was rumors saying that P&O managing director and chief executive officer Chan Thye Seng had been planning to exit the insurance business for some time.

The merger and acquisition between both companies seems possible as analysts believe that Bank Negara is expecting the consolidation of local insurance industry.

Market talk that Prudential was interested to acquire P&O Insurance had started about two weeks ago. This had pushed the company share price to its highest point of RM1.24 this year on Aug 12. It closed at RM1.20 yesterday, down 4 sen.

When contacted, a Prudential spokesperson said it was premature now to comment further on the matter as the approval for preliminary talks had just been given.

An analyst said that the merger would enable Prudential to leverage on P&O Insurance’s distribution network and niche client base while P&O Insurance could leverage on Prudential’s strong name to sell its products.

Kenanga Research said previously that P&O Insurance’s client base, good balance sheet and niche customers were a good fit for foreign insurers that were looking for entry into the Malaysian market or to expand theirs market share.

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