Pru abandons AIG Asia deal but faces €540m bill
Published 03/06/2010 | 05:00
UK INSURER Prudential abandoned its plan to buy AIG's Asian life unit for $35.5bn (€28.7) yesterday, leaving management under fire and the company facing a £450m (€540m) bill for failure.
Prudential's move to drop out was widely expected after bailed-out US giant American International Group refused to cut the price, turning down a last-ditch effort by Britain's largest insurer to appease shareholder concerns.
"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," Prudential chairman Harvey McGrath said in a statement.
"We are therefore withdrawing from the transaction."
For AIG, the collapse of the sale means it must weigh up its options including a potential return to its previous plan to float off American International Assurance with a record initial public offering reckoned to be worth up to $15bn.
For Prudential, however, the end of the botched takeover effort leaves its own strategy open to question and its management open to criticism, with chief executive Tidjane Thiam and McGrath seen as having personally led the plan that would have made it Asia's largest foreign-owned insurer.
Both spent time yesterday speaking to top investors, smoothing ruffled feathers and hoping to dampen revived talk of a break-up of Britain's top insurer. They will also have to explain away the hefty £450m cost of the failed deal, including a break-up fee, the impact of currency hedging and other costs.
"The risk is the company is rudderless, lacking leadership," analyst Marcus Barnard at Oriel Securities said.
"They have incurred a net £450m of costs, after the effect of currency hedging which would probably have given them between £300m and £500m of pounds -- so you have basically spent £750m to £1bn of shareholders' money and you have nothing to show for it. It's a tough one."
Prudential's retreat will mean it has avoided the risk of an embarrassing and virtually unprecedented public defeat at the hands of shareholders who were due to vote next Monday on the deal and its funding.
Shareholders will still meet next week, however, in a gathering that is now expected to provide the first opportunity for many to quiz management on what went wrong, and why.