Prudential paying millions to bail on AIA purchase
Updated: 2010-06-03 07:25
By Li Tao(HK Edition)
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Failing to renegotiate a watered-down price with American International Group (AIG), Hong Kong-listed UK insurer Prudential Plc has decided to walk away from the takeover of AIG's Asian life insurance unit, at a cost of approximate 450 million pounds.
"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," Chairman of Prudential Harvey McGrath said in a statement Wednesday. "We are therefore withdrawing from the transaction."
The total cost of 450 million pounds, including 152.6 million pounds breakup fees and 81 million pounds in underwriting charges and currency hedges, may put further pressure on Tidjane Thiam, the group chief executive officer, to resign for failing to renegotiate the terms for the deal, some reports said.
A poll titled "Should Prudential's Tidjane Thiam resign?" on the Guardian's website reveals that almost 60 percent of voters believe the insurer's chief executive officer should step down.
Though Thiam said in a statement that he views Asia as offering excellent growth opportunities for the group and, accordingly, entered into this potential transaction, Kenny Tang, executive director with Redford Securities Ltd in Hong Kong, believes Prudential has been "too hasty" in making the takeover decision.
"AIG originally planned to list its AIA unit in Hong Kong to raise cash. In fear of another formidable rival to its business in Asia, Prudential formulated plan to buy it out in a very short time, leaving the potential risk and huge loss aside in case the takeover could not be achieved," said Tang.
The breakup cost amounts to about a third of Prudential's entire 2009 operating profit. Tang said the insurer's management, including Thiam and possibly others on the board, are indeed responsible for the huge loss this time.
Prudential previously offered $35.5 billion for AIA, AIG's wholly-owned pan-Asia life insurance subsidiary, but has proposed to lower the price tag to $30.4 billion earlier this week, after protests by some of its shareholders that the UK insurer is overpaying for AIA.
AIG turned down the revised offer Tuesday, a move welcomed by investors of Prudential. Both the insurer's London-listed and Hong Kong-listed shares jumped Tuesday after investors learned news of Prudential's likely withdrawal from the deal.
On Wednesday, the share price of the UK insurer rose further HK$1.2 or 1.89 percent to HK$ 64.70, bucking a weaker broad market.
China Daily
(HK Edition 06/03/2010 page3)