Prudential axes mega takeover of Asian insurer AIA

2nd June 2010, Comments 0 comments

British insurer Prudential on Wednesday axed its monster takeover of AIG's Asian unit AIA, ending a bid to become the world's top non-Chinese insurance firm and placing the future of its chief executive in doubt.

Prudential said in a statement it had ditched the 35.5-billion-dollar (29-billion-euro) mega-deal after AIG refused on Tuesday to cut the price to nearer 30 billion dollars, following a shareholder revolt over the high cost.

The mammoth transaction, which would have been the biggest-ever takeover in the insurance sector, had required renegotiation because of turbulent financial markets, according to Prudential.

Total costs from the collapsed deal were estimated to be around 450 million pounds (540 million euros, 660 million dollars), including a break-fee of more than 152 million, the British firm added.

The aborted takeover had been masterminded by Prudential's high-profile chief executive Tidjane Thiam, whose glittering career now looks tarnished, according to media.

"Prudential plc announces that it is in negotiations with American International Group, Inc. (AIG) for the termination of the agreement for the combination of Prudential with AIA," the London-based firm said.

Prudential had unveiled the record takeover in March, declaring it a transformational deal which would make it the world's top non-Chinese insurer by market capitalisation, ahead of competitors Allianz and AXA.

In reaction to news of the failure, Prudential's share price sank 2.69 percent to 560 pence in late morning trading here on Wednesday, while the FTSE 100 index on which the group is listed was down 1.01 percent.

However, the stock had soared by 6.3 percent on Tuesday as investors had welcomed AIG's refusal to budge on the price.

"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," Prudential chairman Harvey McGrath said in the statement.

"We are therefore withdrawing from the transaction."

Prudential boss Thiam, born in the Ivory Coast but now with French nationality, took a huge gamble by making the ambitious bid for AIA only six months into his job at the helm of the British group.

Thiam, who aimed to transform the 162-year-old British company into an international insurance powerhouse, added on Wednesday that the deal had required re-negotiation.

"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," Thiam said.

"We agreed with shareholders that a re-negotiation of the terms was necessary given market movements but it has not proved possible to reach agreement."

He also stressed that Prudential would keep a strong focus on growing its business in Asia.

But the Financial Times said on Wednesday that some investors were calling for Thiam's head after his failure to re-negotiate the deal.

"It will be an early agenda item -- who will be the new CEO," one major unnamed investor told the paper.

The Daily Telegraph reported that AIG had turned its back on Prudential and was instead pursuing other options.

Quoting sources, the paper said AIG was exploring talks with sovereign wealth funds, including Singapore-controlled GIC and Temasek, and Qatar Holdings, which could become "cornerstone investors" in AIA ahead of reviving plans for an initial public offering in Hong Kong.

The Telegraph said the implosion of the deal had made Prudential a bid target itself.

Prudential's newly listed shares in Hong Kong and Singapore were mixed at the close Wednesday after the British insurance giant abandoned the takeover.

Investors boosted the insurer's Hong Kong share price by 1.89 percent to 64.70 Hong Kong dollars (8.30 US dollars), while the stock fell 13 cents, or 1.56 percent, to 8.19 US dollars in Singapore.

Wooing Asian investors, Prudential last week took out secondary listings in Hong Kong and Singapore ahead of a rights issue worth 21 billion US dollars to help fund the deal for AIA, the Asian arm of American International Group.

One Hong Kong analyst said there could well be relief that the AIA deal had fallen through after Prudential's institutional investors rebelled at the price tag of 35.5 billion US dollars.

"AIA is three times bigger than Prudential -- it's too big for Prudential to swallow," Fulbright Securities general manager Francis Lun told AFP.

Thiam was appointed Prudential boss in March 2009, becoming the first black chief executive of a company listed on London's benchmark FTSE 100 index.

Thiam, who began his role in October 2009, was formerly Prudential's financial chief.

© 2010 AFP

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