Pru's bid near collapse as AIG rejects any price cut

Published on Tuesday 1 June 2010 21:23

PRUDENTIAL's blockbuster bid for AIG's Asian business was on the brink of collapse last night after it failed to secure a price cut from $35 billion (£23.8bn) to $30.38bn.

• Tidjane Thiam, chief executive officer of Prudential Plc, left, speaks during an interview in London. Picture: Getty

The deal, which was to be part-funded by a near-14bn rights issue and had aroused institutional shareholder opposition, looked dead in the water after an AIG statement that it would "not consider a revision to the terms".

Analysts said it also raised questions about the future of Tidjane Thiam, Prudential's new boss, who launched the bid to make the company a much greater player in Asia just six months into the job.

One institutional shareholder, who wished to remain anonymous, said: "Pru will have to explain to us what is strategic plan B. You are probably talking about putting the company under strategic review and maybe not under the current chief executive."

The Pru's shares closed up 6 per cent at 575.5p on relief that the company may not now launch its highly dilutive rights issue.

Robin Geffen, managing director of Neptune Investment Management, one of the main orchestrators of institutional opposition to the acquisition, said: "It would appear that common sense has prevailed.

"The feeling amongst most is that the Pru's purchase of AIA, AIG's Asian arm, is no longer on the table after a revised lower price was rejected by AIG. I sincerely hope that the deal is off. From the beginning it has been an absurdly ambitious attempt by the Pru to buy a large Asian company, at a very high price, with a very unclear strategy." Paul Mumford, senior fund manager at Cavendish Asset Management, said: "The good thing would be for the Pru to withdraw gracefully. If they do put it to a vote, I'd be very surprised if shareholders vote it through."

The shareholder EGM to approve the deal and accompanying rights issue was due next Monday, 7 June.

The Pru issued a statement yesterday saying it was "considering its position".

Analysts said a failure of the takeover bid would inevitably bring back long-running talk of a break-up bid for the British insurer, although a lack of well-funded buyers would make imminent approaches unlikely.

Prudential was forced to reopen price negotiations with AIG last week as it feared it might fail to attract the required 75 per cent approval for the deal and rights issue.

Thiam's handling of the bid was called into question last month, when the Financial Services Authority ordered it to boost its capital position, forcing a last-minute delay in publishing details of its cash call. He had also been accused of "arrogance" in trying to push the deal through.

Less than three weeks after launching the deal, Thiam, a former McKinsey executive, was forced to back away from taking a seat on the board of French bank Societe Generale after shareholders complained his new role would distract him from the mega-deal.

A failure of the AIA takeover also poses a problem for AIG boss Robert Benmosche, who wants to use the proceeds to repay part of the $132bn bailout the US insurer received at the height of the financial crisis.