Pru tells US that it needs a new AIA deal ready by Tuesday

James Moore,Deputy Business Editor
Monday 31 May 2010 00:00 BST
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Prudential executives were last night locked in talks with insurer AIG and US Government officials in a desperate bid to secure a cut in the $35.5bn (£24.5bn) price of Asian insurer AIA by the opening of trading in London tomorrow.

The insurer has been told that it needs to secure a cut of at least 10 per cent in the price by key fund managers at Capital Investments, the US institution that is its biggest shareholder. With just over 13 per cent of the stock, Capital has the power to all but kill off the deal by withholding support, given the degree of opposition already voiced by UK-based investors.

Prudential needs the support of 75 per cent of its shareholders for the takeover of AIA to go through. The company's chief executive, Tidjane Thiam, is due to be in London this morning for two days of intensive talks with powerful UK institutions.

Relations between Prudential and some of its leading shareholders remain tense, and failure to attend those meetings by Mr Thiam could exacerbate an already fraught situation. Mr Thiam needs to be on hand to secure their support. Several dissidents have indicated that they will not back the deal with even a 10 per cent reduction in the price, which would take the total consideration to just under $32bn.

AIA's owner AIG is itself owned by the US government after it had to be bailed out during the financial crisis. American officials have indicated that they could reheat a plan to float AIA if Pru's bid fails, although analysts say that given the current market turmoil, AIG could struggle to net $30bn from such a move.

However, analysts at Alliance Bernstein, have estimated the "fair" value of AIA's business to be $49bn, saying that any reduction in the price would "clearly benefit Prudential shareholders further".

UK institutional shareholders are unconvinced, with more publicly voicing their intention to vote against the deal before the weekend. With the company now having to fight for every vote, it is doubly important for it to get a revised offer out over the London Stock Exchange's Regulatory News Service by tomorrow morning, because many custodians are requiring small shareholders who hold their investments in "nominee accounts" to register their votes by the close of trading.

With Neptune running a highly successful campaign to attract dissidents, the 9 June vote is set to be close, even if Prudential can hit the target of a 10 per cent price reduction. Neptune's chief executive Robin Geffen has already said this will not be enough to sway his opposition to a deal he has sharply criticised. But the company will hope that renegotiating the deal will secure the support of some undecided smaller shareholders whose support could prove crucial.

Shareholders are already being asked to put up £14.5bn to fund the takeover through a deeply discounted rights issue. The price, if cut, is likely to be pared back by reducing the level of new Prudential shares handed to AIG. Prudential wants to complete a deal by the third quarter of the year.

Critics have argued that the best option for the insurer would be to walk away from the deal and try and mend fences with its investors, who have been sharply critical over the way the company has communicated a deal that would transform it into the biggest foreign insurer in Asia.

Privately, several have said that more value would be realised for shareholders were Prudential to be broken up. Clive Cowdery, the boss of Resolution, is keen to combine Pru's UK business with Friends Provident to realise his plans to create a UK super insurer, although he would have to raise a substantial amount of cash to fund the deal and satisfy the new "get tough" Financial Services Authority. Analysts have also argued that Pru's US business, Jackson, is sub-scale and could be sold off.

Prudential declined to comment.

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