Prudential left with £450m bill as AIA deal collapses
Wednesday 02 June 2010
Insurer Prudential was left with a £450 million bill today after its £24 billion Asian adventure came to a humiliating end.
The Pru's bid to buy AIA - the Asian arm of bailed-out US insurance giant AIG - finally collapsed after its shareholders baulked at the hefty price and chief executive Tidjane Thiam failed to renegotiate the deal.
Mr Thiam - who only took over the top job last October - will now face pressure to quit with his plans for a ground-breaking acquisition in ruins.
The withdrawal leaves the insurer with a £152.6 million break fee as well as advisory costs and fees, £450 million in total, connected with the record £14.5 billion shareholder cash-call it planned to fund the deal.
The huge cost of the deal's failure comes close to the £481 million the Prudential paid out in dividends to investors last year.
Major institutional investors were also unhappy at the prospect of stumping up the bulk of the 35.5 billion US dollar (£24.2 billion) price for AIA in turbulent markets and pushed Mr Thiam to gain a cheaper deal.
It proposed a cut in the value of the deal to 30.4 billion US dollars (£20.7 billion) but this was rejected by AIG, which is 80% owned by the US Treasury.
The opposition of the Pru's own investors left it facing the humiliating prospect of the move being voted down by shareholders at a meeting next week unless it walked away.
The acquisition - first announced in March - was also held up by concerns from the Financial Services Authority (FSA) over the capital position of the enlarged group.
The disarray sparked by the collapse of the AIA deal could even leave the insurer vulnerable to a takeover and break-up.
Chairman Harvey McGrath said the company had "listened carefully to shareholders" while Mr Thiam said he still viewed Asia as "offering excellent growth opportunities".
Mr Thiam added: "We agreed with shareholders that a renegotiation of the terms was necessary given market movements but it has not proved possible to reach agreement."
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