UK insurer Prudential PLC is pulling out of its bold US$35.5 billion takeover of American International Group’s (AIG) Asian life insurance arm, ending a three-month battle with shareholders who had argued the deal was overpriced.
The widely expected move yesterday came after AIG rebuffed Prudential’s attempt to lower its offer, and could pave the way for American International Assurance’s (AIA) potentially up to US$15 billion initial public offering (IPO).
“We listened carefully to shareholders over the price and initiated a renegotiation of the terms with AIG. Unfortunately, it has not been possible to reach agreement,” Prudential Chairman Harvey McGrath said in a statement. “We are therefore withdrawing from the transaction.”
PHOTO: BLOOMBERG
Prudential’s Hong Kong-listed shares jumped as much as 7.1 percent to HK$68 (US$8.70), tracking a 6.3 percent rise in its London-listed shares on Tuesday. By 6:30am GMT, the stock was trading up 0.6 percent.
The failure of what would have been the biggest insurance merger and acquisition deal in history could make the position of Prudential’s management untenable and increase the call for the British firm to be broken up, analysts and fund managers have said.
However, a graceful retreat would help Prudential avoid an embarrassing defeat at the hands of shareholders, who were due to vote next Monday on the deal and a US$21 billion rights issue to help fund it.
Prudential Chief Executive Tidjane Thiam had argued the AIA deal would give the 162-year-old British insurer a rare opportunity to grab a commanding presence in Asia. However, shareholders said the deal was expensive and there was risk in integrating staff and agents of two fierce insurance rivals.
Prudential said it would not proceed with the planned rights offering in London and Hong Kong.
Prudential estimated the cost of the failed AIA transaction so far at about £450 million (US$659 million), which includes a break-up fee of £152.6 million pounds.
AIG is likely now to revive a planned IPO of AIA, but there are doubts whether an IPO could fetch the same valuation as offered by Prudential.
There is also the issue of timing the market so as not to clash with a flood of Chinese bank capital-raising slated to hit the market later this year.
Capital-hungry Chinese lenders are set to raise up to US$60 billion in new capital in the next six to eight months.
AIG Chief Executive Robert Benmosche told employees in an internal memo that AIG would have several options to consider regarding AIA — more than it did in March. AIG, nearly 80 percent-owned by the US government, also would have more flexibility on timing, he said.
These options include selling parts of the AIA business by geography, two of the sources said.
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