Prudential deal collapses

Prudential deal collapses

02 June 2010 / by Lois Avery

Prudential’s takeover bid for AIG’s Asian business has collapsed with £450million in costs after they failed to agree on a lower price for the deal.

In March, Prudential agreed to buy AIA for £24.6billion, but last week asked for the price to be cut to nearer $30billion after shareholder opposition.

But AIG has refused to accept a lower bid for their Asian business AIA and Prudential now faces £450million in costs, including a break fee of about £152million and arrangement and underwriting fees of £81million.

The breakdown in the deal also means that the rights issue offered to shareholders last month, which hoped to raise £807 million to finance the deal, will not go ahead.

Shareholders originally opposed the deal saying that Prudential was paying too high a price for the Asian company, with no clear strategy.

In a statement Tidjane Thiam, Group Chief Executive, Prudential said: “We entered into this potential transaction from a position of strength in Asia and we view the region as offering excellent growth opportunities for Prudential. 

“We agreed with shareholders that a renegotiation of the terms was necessary given market movements but it has not proved possible to reach agreement.  Our existing business in Asia has delivered another record performance in the first quarter of this year and we will continue to focus on generating sustainable shareholder value across our portfolio."

Harvey McGrath, Prudential's chairman added: “While AIA was an excellent opportunity, since we announced the potential transaction we have seen significant falls in the markets. 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 so we feel it is in the best interest of our shareholders not to pursue this opportunity.  We are therefore withdrawing from the transaction."

It is now thought that the top board members at both AIA and Prudential could face losing their jobs with the Financial Times reporting that leading shareholders are urging the board to resign.

Following the collapse of the deal shares in the Pru were down 2.4 per cent this morning.

© Fair Investment Company Ltd