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Prudential, AIG in talks about AIA sale

Harvey McGrath, left, chairman of Prudential and Hong Kong Exchanges & Clearing Limited Chairman Ronald Arculli toast during the ceremony of the listing of Prudential in the Hong Kong Stock Exchange Tuesday, May 25, 2010. McGrath said Tuesday he's confident the British insurer can secure shareholder approval for its planned $35.5 billion takeover of Asia-based AIA Group from bailed-out U.S. insurer AIG. Harvey McGrath, left, chairman of Prudential and Hong Kong Exchanges & Clearing Limited Chairman Ronald Arculli toast during the ceremony of the listing of Prudential in the Hong Kong Stock Exchange Tuesday, May 25, 2010. McGrath said Tuesday he's confident the British insurer can secure shareholder approval for its planned $35.5 billion takeover of Asia-based AIA Group from bailed-out U.S. insurer AIG. (AP/Kin Cheung)
By Robert Barr
Associated Press Writer / May 28, 2010

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LONDON—Prudential PLC said Friday it is talking with U.S. insurer AIG about the terms for the proposed sale of AIG's Asian unit, AIA, a deal which faces strong resistance from Prudential shareholders.

Some shareholders are organizing opposition to the $35.5 billion price agreed for AIA, and needs to line up support from holders of 75 percent of shares by June 7.

"We confirm that discussions regarding the current status of the transaction have taken place between Prudential and AIG and are continuing," Prudential said in an announcement to the London Stock Exchange."

"These discussions may or may not lead to a change in the terms of the combination of AIA Group Limited and Prudential."

Prudential shares were up 1 percent at 553 pence in early trading on the London Stock Exchange.

A number of analysts believe Prudential agreed too high a price for AIA.

Opponents of the deal have formed a Prudential Action Group, which is seeking to muster support for a vote of no confidence in the Pru's chief executive, Tidjane Thiam. The Action Group claims that at least 15 percent of shareholders intend to vote against the deal.

Prudential has announced a rights issue -- 11 new shares at 104 pence each for every two existing shares -- to raise $20.9 billion to help finance the deal. The company also plans $5.4 billion in hybrid debt financing.

On Tuesday, Prudential shares debuted on the Hong Kong Stock Exchange as the company sought to draw Asian investor support for its fundraising.

American International Group Inc., which received more than $180 billion in aid from the U.S. government during the financial crisis, hoped to raise a total $51 billion from the Prudential deal and the sale of its American Life Insurance Co. division to MetLife Inc.

"The key question remains how much the price needs to be reduced by to convince the skeptics to vote yes," said Eamonn Flanagan, analyst at Shore Capital.

"Our view would be that a $30 billion revised price would nudge many over the line, although the transaction and integration risks are likely to remain insurmountable for many others."

The other big question, he added, was whether AIG would accept such a big cut in price.

Before agreeing to sell to Prudential, AIG had planned to float AIA on the Hong Kong Stock Exchange.

"Whilst we have no feel for AIG's position we suspect that the IPO valuation of AIA was below $30 billion," said Barrie Cornes, analyst at Panmure Gordon.

"Given that the markets have moved south and IPOs have been pulled we suspect that AIG may well look pragmatically on the renegotiation of the price Pru is being asked to pay.

"The U.S. government -- largest shareholder in AIG -- may well view a price of circa $30 billion as a bird in the hand," Cornes said.

If the AIA deal falls through, Prudential will owe AIG a termination fee of $230.6 million.