Prudential's move for AIA on knife-edge over price

Published on Sunday 30 May 2010 21:35

SPECULATION was mounting last night that Prudential may walk away from its blockbusting deal to swallow the Asian arm of US insurer AIG if it cannot renegotiate the price.

Britain's biggest insurer remained locked in talks over the terms of the takeover yesterday, as research suggested investors would only back the move if the price was reduced.

The Pru is understood to be trying to reduce the price it must pay for AIA to about $30 billion (20.7bn), against the current price tag of $35bn. It must secure the support of 75 per cent of investors at a special meeting on 7 June if the deal is to go ahead.

One report yesterday suggested the Pru would be able to secure enough shareholder support for the takeover, if the price was reduced by more than 10 per cent. It was reported that Capital Group, the firm's biggest shareholder with a 13 per cent holding, was expected to back the deal if the price dropped to between $31bn-$32bn.

However, it is thought that private polling done for the life and pensions giant showed that only about half of individual investors, many with small stakes, will support a takeover deal.

Large institutional investors are understood to be even less likely to vote in favour of it, with just 30 per cent believing it is in the company's best interests.

Some 56 per cent of Prudential's 10,000 largest individual shareholders are also thought to back the move.

According to a Sunday newspaper report, Tidjane Thiam, the chief executive of the Pru, has privately admitted the $35bn price is too high, and the group is likely to have to walk away from the deal if it is not lowered.

The US government owns 80 per cent of AIG and is thought to be determined to get the failed insurance giant off its books.

A spokesman for the Pru declined to comment on yesterday's speculation.

The takeover would give Pru some 30 million customers in Asia and see the Asian operation become by far the group's biggest division – contributing well over half of new business profit.

The insurer has suffered a series of setbacks since it unveiled plans to buy the business from the US insurer in March.

It was forced to delay a 14bn investor cash-call being used to part-finance the takeover after City watchdog the Financial Services Authority raised concerns about the capital strength of the enlarged company.

The rights issue was eventually launched in mid-May, but the hiccup with the FSA compounded worries over the acquisition.

As well as their worries about the price tag, shareholders have expressed doubts about the merits of the deal and the length of time it will take to secure acceptable returns from the investment.