Prudential's Asian takeover threatened after price cut snub
British insurer Prudential failed on Tuesday to get US rival AIG to cut the 35.5 billion dollar takeover price for its Asian unit, threatening a huge deal already facing a shareholder revolt.
The rebuff piled fresh pressure on Prudential's chief executive Tidjane Thiam as he scrambles to salvage his high stakes gamble to transform the 162-year-old British company into an international insurance powerhouse.
Prudential, which had asked AIG to cut its price for AIA to 30.375 billion dollars (36.8 billion euros), said in a statement that its board was "considering its position" after the rejection.
Separately, American International Group said in a terse statement that "after careful consideration, the company will adhere to the original terms of its previously announced agreement."
"The company will not consider revisions to those terms," it added.
If successful, the takeover would be the biggest-ever in the insurance sector, transforming Prudential into the world's top non-Chinese insurer by market capitalisation, ahead of major competitors Allianz and AXA.
Investors welcomed the news, sending Prudential's share price soaring 3.88 percent to 562.5 pence in late morning trade on London's FTSE 100 index of top companies, which was down 2.27 percent at 5,070.45 points.
"Pru says that it is now considering its position but, unless AIG have a change of mind, we believe that the deal will collapse as Pru will be unable to garner sufficient support to proceed with the acquisition," said Panmure Gordon analyst Barrie Cornes.
Likewise, analyst Joshua Raymond at spread betting firm City Index said that the AIG's refusal to negotiate the terms of the original deal raised a "major threat to the success of the acquisition".
"Investors had been concerned that Prudential were paying too high a price for AIA, and with the deal now looking on the verge of collapse, Prudential's share prices have received a boost," he added.
Prudential agreed in March to the original 35.5-billion-dollar takeover price for AIA but has since scrambled to get a reduction as some shareholders such as asset manager F&C baulked at the cost.
Prudential needs 75-percent approval from its shareholders at the June 7 vote to proceed, an increasingly difficult prospect given Prudential's failure to secure a lower price.
"The markets clearly believe the deal that would have seen Prudential make its largest ever acquisition and that would be accompanied by a record breaking rights issue is dead in the water," said analyst Howard Wheeldon at BGC Partners.
"By rejecting Prudential's request to cut the agreed 35.5 billion dollar ticket price of AIA Group assets it seems to me that, inadvertently or not, AIG has decided also that it is not prepared to be involved saving the career of Prudential CEO Tidjane Thiam," he added.
Thiam, born in the Ivory Coast, but with French nationality, took a huge risk by making the ambitious bid for AIA only six months into his job at the helm of Prudential.
He hoped to finance the record takeover by selling 14.5 billion pounds (17 billion euros, 21 billion dollars) in new shares.
© 2010 AFP