Prudential licks its wounds after AIA bid failure

Speculation is rife in the UK media
as to whether Prudential’s CEO Tidjane Thiam will survive the
collapse of the insurer’s bid to acquire AIA Group, American
International Group’s (AIG) Asian subsidiary, for $35.5bn.

The collapse followed AIG’s rebuff
of Prudential’s attempt to lower its offer for AIA to $30.4bn.

The deal’s failure thwarts Thiam’s
ambition to make Asia “the group’s future growth engine” and
increase the proportion of business derived from Asia from 50% to
80%.

Combining AIA and Prudential’s
Asian units would have created the largest life insurer in seven
major Asian countries and in Asia as a whole.

Beyond strategic implications of
the deal’s failure, it has been costly for Prudential which
revealed that costs it has incurred total £450m ($657m), an amount
equal to15% of its 2009 operating profit. Costs include a £152.57m
termination fee payable to AIG.

For AIG the deal’s failure reduces
its ability to repay about $83bn owed to the federal government and
Federal Reserve Bank of New York.

The deal would have seen AIG
receive $25bn in cash, $8.5bn in Prudential ordinary shares and
$2bn in Prudential preference shares. The shares were to be sold
after agreed holding periods.

AIG will possibly proceed with an initial public stock offering
(IPO) of AIA which it was preparing to do prior to receipt of
Prudential’s offer. Rating agency Moody’s lead analyst for AIG
Bruce Ballentine warned that given current market conditions the
IPO’s value could be lower than Prudential’s offer.

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