World Business

Prudential bid for AIA turns sour

By Kevin Crowley (China Daily)
Updated: 2010-05-29 09:54

LONDON - Prudential Plc Chief Executive Officer Tidjane Thiam was handed the chance to make a $35.5 billion bid for insurer AIA Group Ltd after his firm's share price almost tripled. The biggest decline in equity markets since the financial crisis may derail his plans.

Falling investor confidence sparked by Europe's sovereign debt crisis hampered corporate fundraisings in the past two months as Thiam, 47, asks investors for $21 billion, the biggest rights offer for an acquisition on record. Thiam was in New York on Thursday to make his case in person to American International Group Inc executives that the price for AIA should be cut, said a person with knowledge of the situation. The company confirmed in a statement that talks with AIG are continuing.

"It's probably the least ideal market to raise capital," said James Buckley, a London-based fund manager at Baring Asset Management Ltd, who helps oversee $44 billion, including Prudential stock. "The market is not completely closed for small rights offers, but for major deals like Prudential, it's inevitably tough."

Thiam said when he announced the offer in March that Prudential had "earned the right" to buy AIA after the stock jumped 191 percent to 602.5 pence in 12 months. The MSCI World Index plunged about 11 percent in the last six weeks, fueling shareholder criticism that Prudential is overpaying for AIA.

BlackRock Inc and Fidelity Investments are among major Prudential shareholders that have voiced concern the deal is too expensive, said the person, who declined to be identified because the discussions are private. Some shareholders are demanding a reduction to as low as $30 billion, a price AIG's board is unlikely to approve, the person said.

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"We have a signed agreement with Prudential, and we expect them to use their best efforts to live up to it," said Mark Herr, a spokesman for New York-based AIG, in a statement.

Speculation the deal would collapse was "unfounded", Prudential spokesman Ed Brewster said. The current talks between Prudential and AIG "may or may not lead to a change in the terms of the combination", the insurer said.

"The acquisition of AIA by Prudential represents a compelling combination that can deliver very attractive long-term returns to our shareholders," Brewster said.

Investors owning as much as 20 percent of Prudential stock plan to vote down the takeover at the UK insurer's annual general meeting on June 7, Neptune Investment Management Ltd, a London-based shareholder, said this week.

Bloomberg News