Shares in Prudential dived 5 per cent to 681p on the news. The stock remained well above the 627.5p, where it was trading before news of Aviva's approach leaked into the market a week ago, reflecting optimism that another offer for Prudential may emerge.
Richard Harvey, the chief executive of Aviva, said he had been left with no choice but to withdraw the offer after a complete lack of co-operation from the Prudential board. "The commercial logic of the deal was widely accepted by both sets of shareholders," he said. "But a precondition was that Prudential and its management engaged constructively in [discussions]. They are adamant that that is not what they're going to do in any circumstances."
Prudential rejected Aviva's all-share offer, which was equivalent to about 708p a share, as soon as it was made public, claiming it was "unsolicited and unwelcome". Mr Harvey conducted a tour of the company's major shareholders last week to gauge opinions on the deal.
In a statement to the market yesterday, Prudential said: "The board continues to have full confidence in Prudential's independent future and remains focused on delivering sustainable and profitable growth for its shareholders." Although Aviva retains the right to return to the table within the next six months if another bid for Prudential is made, Mr Harvey said there was no chance of Aviva revisiting its offer unless Prudential's management had a change of heart.
"There appears to be absolutely no circumstances in which Prudential's board and management would wish to engage, so that rules out any possibility of us proceeding," he said.
The City gave a mixed reaction to the news. Farooq Hanif, an analyst at Credit Suisse, said an opportunity to create a powerful and unique insurance company had been thrown away. "It's very disappointing news, as I think this would have been a very interesting deal," he said.
One major shareholder in Aviva and Prudential said further bids for the companies could not be ruled out. "It's very difficult to know what's going to happen next, but Aviva and Prudential are both still in play," he said.
He added that Prudential's high share price meant it was unlikely to receive a bid. "Aviva will have to sit back and lick its wounds for a while now, and it may have to increase its dividend further - as they've shown they have got quite a lot of spare cash around."
One Prudential shareholder said he believed Aviva had been "incredibly ill-advised" to withdraw so early, adding that its shares were likely to be subject to a permanent discount, as it had exposed their weaknesses.
Mr Harvey refuted the suggestion that Aviva needed to make a large acquisition to continue growing, saying the company would return to its original plan "with a great deal of confidence". He said he did not believe Aviva had become a takeover target as a result of its approach for Prudential.
Analysts have suggested Aviva may consider making a bid for Aegon, or continue its hunt for potential targets in the US. Potential foreign predators who are believed to be running the slide rule over the UK insurersinclude AIG, AXA and Allianz.
Shares in Aviva climbed 9.5p to 831.5p yesterday.Reuse content