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Prudential Withdraws From Deal To Buy AIG’s Asian Life Insurer
Corporate Digest | 07 June 2010
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By: Louis Kent Lee
Articles (199) Profile

U.K. insurer Prudential PLC Wednesday said that it is withdrawing from an agreement to acquire American International Group Inc.’s (AIG) Asian life insurance unit AIA Group Ltd. after failing to renegotiate a lower price for the US$35.5 billion transaction.

“Unfortunately, it has not been possible to reach agreement so we feel it is in the best interest of our shareholders not to pursue this opportunity. We are therefore withdrawing from the transaction,” Prudential’s chairman Harvey McGrath said in a statement.

Prudential had sought to lower the price tag of the deal to a total of US$30.4 billion after it became clear it wouldn’t secure enough support from its shareholders for the takeover under its original terms.

But in a terse statement Tuesday, AIG rejected the revised offer dealing a fatal blow to the deal.

AIG, which is nearly 80% owned by the U.S. government, didn’t give a reason for rejecting the revised offer from Prudential. The US insurer had planned to use proceeds of the deal with Prudential to start repaying the U.S. taxpayers who had bailed it to the tune of US$132 billion. Spokespeople at AIG and AIA couldn’t be immediately reached for comment on Wednesday.

Prudential’s revised US$30.4 billion offer comprised of US$23 billion of cash, with the remaining in shares and other securities, while the original deal included US$25 billion in cash.

The British insurer said that total costs associated with the transaction so far were about GBP450 million including a break fee of GBP152.569 million, which will be paid to AIG.

“We entered into this potential transaction from a position of strength in Asia and we view the region as offering excellent growth opportunities for Prudential,” Prudential’s chief executive officer Tidjane Thiam said in the statement Wednesday. “We agreed with shareholders that a renegotiation of the terms was necessary given market movements but it has not proved possible to reach agreement.”

Prudential, which has already listed shares in Hong Kong and Singapore in preparation for AIA’s acquisition, said that if the agreement is terminated, it will not proceed with its plan for a rights issue or any other financing relating to the deal.

In its statement on Wednesday, Prudential said that its strategy to allocate “capital in priority to the most profitable geographies and products, with a particular focus on Asia remains unchanged.”

It also said that if its agreement with AIG is terminated, Prudential will not put any resolutions to the court and shareholders meeting convened for June 7.

“The reconvened Annual General Meeting will go ahead as planned on June 7,” it said.

Louis is a qualified accountant with the ACCA, and is the Research Editor at Shares Investment magazine.

Please click here for more information about this author.

Prudential PLC  -- -- --   
Business: Co provides a range of retail financial products and services, and asset management services.

Insight: Mar-17, FY16 net profit decreased by 25.5% despite... Read More

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