Prudential 'eases watchdog's fears' to put £23.5bn AIA deal back on track

An 11th-hour deal could be unveiled as early as today after reports that the Pru had found ways to reassure the Financial Services Authority (FSA) over concerns about the insurer's capital levels.

The group's proposed $35.5 billion (23.5bn) acquisition of AIA, the Asia arm of US giant AIG, hit an embarrassing last-minute snag last week when the FSA blocked Prudential's plans to publish details of its $21bn rights issue to fund the deal.

Sources said that the Pru and the FSA had found common ground in talks over the weekend, but that further steps were needed to salvage the audacious takeover.

One source said: "We're working towards a solution. It has to be put back to (the FSA], it's an ongoing process… There's been progress made."

Another source added: "The intention is to get the prospectus out as soon as possible."

The rights issue prospectus and further details on the deal are expected within days.

The Pru is facing an uphill struggle to salvage some credibility for Tidjane Thiam, its chief executive, as it seeks the approval of cautious regulators against a background of jittery world markets and increasingly mutinous shareholders.

The group needs 75 per cent of shareholders to approve the deal, but several major investors have expressed concern and their scepticism has increased following the unprecedented 11th-hour delay. Some investors could seek a reduction in the price of the deal in return for their support.

The Prudential and the FSA declined to comment yesterday.

The regulator's worries have focused on capital, the insurer's ability to withstand stress tests and the complexity of a deal that involves 22 jurisdictions.

One source close to the matter last week said the FSA's concerns were heightened because Asian regulators did not want Pru to take about 1bn a year out of AIA subsidiaries in the region.

The Prudential wanted to use cash flows from Asia to boost its capital surplus under the insurance group directive – a pot of extra cash the European Union tells insurers to hold for times of economic hardship, the source said.

If the Pru's deal efforts fail, its management team is widely expected to face calls to resign and the company itself could become a target for investors seeking to break up the business.

On Saturday, Robert Benmosche, chief executive of AIG, said the insurance giant had returned to making "real money" after making a first-quarter profit of $1.45bn.

AIG posted losses of nearly $100bn at the height of the housing market collapse in 2008, leading to a $182.3bn bailout from the US government.

The weekend negotiations came as Clive Cowdery's Resolution Group was on the verge of contacting Thiam again with a view to buying the Prudential's UK business.

The two businesses are understood to have held talks about "consolidation" within the UK insurance sector before the AIA deal was unveiled on 1 March.

Cowdery's group is believed to view the Pru's UK assets as an "ideal fit" with its Friends Provident business, which Resolution bought last year.