US Treasury makes back-up plans in case Prudential deal falls through

THE US Treasury is understood to be revisiting plans for a stock market flotation of AIG's Asian arm, as a back-up should Prudential's under-pressure takeover bid fail.

It is thought investment banks have been asked to review their analysis of a stock market flotation, amid fears over Pru's ambitious 24 billion offer.

The US Treasury shelved its initial plans to list AIA – whose parent AIG is around 80 per cent owned by the US Government after a bailout during the financial crisis – and agreed to sell the business to Pru in February.

While treasury secretary Timothy Geithner is still said to support the offer, flotation strategies have reportedly been resurrected as a contingency plan owing to tensions surrounding the deal.

Prudential was forced to delay a 14.5bin investor cash-call, being used to finance the takeover, when the Financial Services Authority raised concerns about the capital strength of the enlarged company.

The rights issue was finally launched last week, but the hiccup with the FSA compounded worries over the acquisition.

Pru has restructured the deal following the FSA's intervention, although it has still faced criticism from some shareholders that the planned move is too risky and expensive.

Its takeover now hangs on a key vote at the company's AGM in two weeks' time, when shareholders will have their say on the deal and the rights issue.

The insurance giant needs 75 per cent approval, and chief executive Tidjane Thiam and his colleagues are working hard to persuade their largest shareholders that the deal is in their best long-term interests.

Thiam has said he will take up his full 1.5m allocation in the rights issue, which will be the largest in UK corporate history.

As he launched a 1,000-page prospectus for the rights issue last week, Thiam said he believed investors would back the rights issue: "Overall, we feel confident they will support this. We always knew this would be a long, complex and challenging process – what we are attempting has never been attempted before.

"The combined business will be a fast-growing and highly-profitable company, with a leading position in many of the most attractive markets in the world."

The heavily discounted share issue will see the new shares offered at 104p each, effectively a 39.3 per cent discount to the theoretical ex-rights price.

The takeover would give Pru around 30m customers in Asia and see the Asian operation become by far the group's biggest division – contributing around 60 per cent of new business profit.

A number of shareholders have spoken out against the proposed deal, including Robin Geffen of investment managers Neptune, who has lent his weight to a group to opposing the deal.