Prudential deal hangs by a thread

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The Independent Online

Prudential's $35.5bn deal to buy AIG's Asian business was hanging in the balance last night as the insurer's chief executive, Tidjane Thiam, continued talks with US Treasury officials about batting the price of the deal down.

Mr Thiam, who spent Friday speaking to investors in California, including the firm's biggest shareholder, Capital, which owns around 13 per cent of the company, was in New York yesterday where he met with AIG's chief executive, Robert Benmosche.

It is thought that Prudential hopes for a reduction of between 15-20 per cent of the original sale price agreed in February. Early indications suggest Mr Thiam may fail to achieve a price low enough to satisfy the company's biggest stockholders.

A US Treasury official said on Saturday that the government "had not considered any alternatives other than the existing contract".

But with negotiations ongoing, US Treasury officials are also examining plans for a possible initial public offering (IPO) of the AIA business, should the Pru deal fail.

It is thought that Treasury officials have spoken with so-called cornerstone investors of the original listing, shelved in favour of the Pru bid earlier in the year, with a view to them taking stakes in the business ahead of a float later in the year when markets have sufficiently improved.

Such a move could allow AIG to pay back $10-$15bn to the US government, which bailed the firm out to the tune of $132bn during the credit crisis, sources familiar with the process said.

It is believed that Prudential's Mr Thiam and the chairman, Harvey McGrath, will convene a meeting of leading UK shareholders as early as Monday to present a renegotiated price if they manage to achieve one.

Sources close to Pru said: "Tidjane won't just come to the market when it reopens on Tuesday with a new price without cast-iron guarantees of support from the big institutions. He won't do a Sir Fred and plough on with a rights issue, regardless. He's not stupid and would realise the game is up."

Should Prudential fail to get a reduced price on the deal, investors will likely demand the heads of both Mr Thiam and Mr McGrath, while the spectre of a break-up of the company will loom large.

One leading investor, who said he believed the deal in its current guise was "grossly overpriced", said: "Whichever way this deal goes, and I think it's just too tight to call, even if they manage to get the price down, it will be studied in business and textbooks for years to come. It's fascinating."

Prudential's share price ended the week up around 30p at 541.5p, amid speculation that the deal would collapse.