Prudential investors will back the group’s bid for AIA — AIG’s Asian life insurance arm — provided it can negotiate a 10 percent cut in the deal’s US$35.5 billion price tag, the Sunday Times reported.
Capital Group, Prudential’s leading shareholder with a 13 percent stake, is expected to vote for the takeover if the price drops to between US$31 billion and US$32 billion, and other big investors are also ready to back revised terms, the paper said, citing unnamed sources close to Prudential.
Prudential declined to comment.
Prudential, Britain’s biggest insurer, was dramatically forced to reopen price negotiations with AIG last week because it feared the deal, seen by some of its investors as too expensive, might fail to garner the required 75 percent approval at a shareholder vote next Monday.
A Prudential team led by chief executive Tidjane Thiam held talks in the US with AIG over the weekend, and the company could issue an update today, when markets in the UK and US reopen after a public holiday yesterday, a source familiar with the situation said.
If the sides are able to agree on a new price, it would likely be between US$30 billion to US$32 billion, the Wall Street Journal reported, citing people familiar with the matter.
The report also said that one possibility being considered is an earn-out, which would increase future payments to AIG if the merged business met performance targets.
Prudential is under pressure to unveil any revised terms before 17:00 GMT on Thursday, the deadline for institutional investors to register their proxy votes ahead of the ballot next Monday.
Paul Mumford, senior fund manager at Cavendish Asset Management, said even a 10 percent price cut was unlikely to win over dissident investors.
“I’d be very surprised if the deal goes through, purely because I think it’s such a bad deal. A 10 percent cut in my opinion wouldn’t be acceptable,” he said.
“The sheer risks involved mean that institutional shareholders do need to have a very positive view in order to vote in favor of it,” he said.
Any revision to the original deal would require the approval of the US Treasury, which said last week that it had “not considered any alternative” to the Prudential takeover.
The US Treasury provided AIG with a US$182.3 billion bailout during the financial crisis and stands to recoup some of the cash through the AIA disposal.
AIG’s other options include revisiting its original plan to offload AIA by listing it in Hong Kong, although analysts said last week that weak markets make an initial public offering less attractive.
Separately, the Sunday Telegraph said Prudential had told AIG that while investors might back a deal priced at between US$31 billion and US$32 billion, a US$30 billion price tag would be more likely to succeed.
The future of Thiam hinges on the success of the AIA bid, launched by the former Ivory Coast government minister in March after less than a year in the top job.
A collapse of the AIA deal would also be bad news for AIG chief executive Robert Benmosche, who is under pressure to pay off the company’s debt to the taxpayer.
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