Prudential may walk away from AIA deal

Speculation was mounting today that Prudential may walk away from a deal to buy the Asian arm of US insurer AIG if it cannot renegotiate the price.

The UK’s biggest insurer remained locked in talks over the terms of the takeover this weekend, as research suggested investors would only back the move if the price was reduced.

The Pru is understood to be trying to reduce the price it must pay for AIA to less than $30bn, compared with the current price tag of $35bn.

It must secure the support of 75% of investors at a special meeting on June 7 if the deal is to go ahead.

But the Sunday Telegraph reported that private polling done for Prudential showed only around half of individual investors, many with small stakes, will support the move.

Large institutional investors are understood to be even less likely to vote in favour of it, with just 30% believing it is in the company’s best interests.

Only 56% of Prudential’s 10,000 largest individual shareholders are also thought to back the move.

The newspaper also reported that Tidjane Thiam, the chief executive of Prudential, has privately admitted the current price tag for AIA is too high, and the group is likely to have to walk away from the deal if it is not lowered.

But reports in the Sunday Times suggested the group would be able to secure enough shareholder support for the deal to go through, if the price was reduced by more than 10%.

It said Capital Group, Prudential’s biggest shareholder with a 13% stake, was expected to back the deal if the price dropped to between $31bn and $32bn.

A number of other big investors are understood to have indicated they would support the takeover if the terms could be renegotiated.

The US government owns 80% of AIG and is thought to be determined to get the failed insurance giant off its books.

A Prudential spokesman declined to comment on the speculation.

The takeover would give Pru around 30 million customers in Asia and see the Asian operation become by far the group’s biggest division – contributing around 60% of new business profit.

The insurer has suffered a series of setbacks since it unveiled plans to buy the business from the American insurer in March.

It was forced to delay a £14bn investor cash-call being used to finance the takeover after the Financial Services Authority raised concerns about the capital strength of the enlarged company.

The rights issue was eventually launched in mid-May, but the hiccup with the FSA compounded worries over the acquisition.

As well as their worries about the price tag, shareholders have expressed doubts about the merits of the deal and the length of time it will take to secure acceptable returns from the investment.

Robin Geffen of Neptune Investment Management has been at the forefront of a campaign urging shareholders to vote against the proposal.