Prudential puts rights issue on ice after FSA sounds alarm

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The Independent Online

Prudential was left with egg on its face after an 11th-hour postponement of its £14bn rights issue raised further questions over its ability to pull off a planned $35.5bn (£23.5bn) takeover of the Asian insurer AIA.

The company had hurriedly arranged a series of conference calls and briefings with analysts, investors and the media on Tuesday afternoon, only to cancel them yesterday as the planned cash call was put on hold by the Financial Services Authority.

The rights issue pricing will now not happen until next week at the earliest – and could take even longer. Prudential will have to pay out hundreds of millions of pounds in break fees to AIA and to bankers, lawyers and public relations advisers if the transaction fails to go ahead.

Harvey McGrath, the chairman, attempted to put a brave face on the delay, saying: "We are entirely committed to the transaction and remain on track to complete within the timing set out on 1 March."

He added: "The work completed since March 1 with the AIA and Prudential teams has convinced me more than ever that the enlarged group will be in a position to capture sustainable and highly profitable growth and will deliver substantial long-term value for our shareholders."

However, the company is already battling to overcome misgivings among some of its larger shareholders, notably its biggest investor, Capital World Investors, which holds a 12 per cent stake.

The postponement because of regulatory concerns threatens to further undermine the bid. Prudential needs 75 per cent backing from shareholders to succeed. One investor said last night that the vote would be on "a knife edge" if it were to be held tomorrow. There has been mounting speculation in the City that Prudential could be in play if the bid fails, with some investors arguing for a break-up of the operation.

There was even speculation yesterday that Prudential tabled a bid for AIA – which is made up of the Asian assets of AIG – because it would have faced a break-up attempt led by AIA if it had not acted first.

Clive Cowdery, the head of the investment company Resolution, has been canvassing support in the City for just such a move himself, because he needs to obtain a business like Prudential's UK arm if his dreams of creating a new British "super-insurer" are to be realised. Last year, Resolution took over Friends Provident, but has been thwarted in its attempts to acquire another insurer to add to it.

The FSA said yesterday it could not comment on "individual firms", but it has been taking a notably tougher stance on issues such as solvency since the banking crisis and companies have been given clear warnings that it will not be bumped into giving deals the green light.

It has a team of staff devoted to Pru and the company can contact them at any time it wishes. The misgivings are thought to relate to capital within the Asian businesses once a merger is complete rather than issues in the US or UK. The shares fell by 9.5p to 549.5p.

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