Bloomberg March 01, 2010, 9:03 PM EST
By Jacqueline Simmons, Zachary R. Mider and Brett Foley
March 1 (Bloomberg) -- Prudential Plc's $35.5 billion agreement to buy an Asian life insurance unit from American International Group Inc. may generate $660 million in fees for investment bankers, according to research firm Freeman & Co.
Credit Suisse Group AG, Lazard Ltd., and JPMorgan Chase & Co. advised Prudential, while Citigroup Inc., Goldman Sachs Group Inc. Blackstone Group LP and Deutsche Bank AG advised AIG, according to data compiled by Bloomberg. The banks will share in about $80 million in advisory fees, according to estimates by Freeman. Prudential's bankers may earn about $580 million for arranging bond and stock sales to finance the purchase, the New York-based research firm said today.
Prudential, Britain's biggest insurer, said today it will pay $25 billion in cash and $10.5 billion in stock and other securities for AIA Group Ltd. The acquisition is Chief Executive Officer Tidjane Thiam's first since he took over five months ago, and is the biggest announced by any company worldwide this year, according to Bloomberg data.
"All of the banks will be falling over themselves to get a piece of this deal," said Peter Hahn, a professor who lectures on corporate finance at the Cass Business School in London. "This would be a windfall."
Prudential is being advised by teams led by Credit Suisse's Chris Williams and Lazard vice chairman Gary Parr. JPMorgan Cazenove and HSBC Holdings Plc are also working on financing the takeover. AIG was counseled by David Head, who runs a team at Citigroup that advises financial firms, Andrea Vittorelli, Andrew Chisholm and Chris Cole at Goldman Sachs, Blackstone's John Studzinski, and Deutsche Bank's Peter Babej and William Nichol.
Largest Insurance Takeover
The sale is the largest insurance takeover excluding the U.S. government's $182.3 billion bailout of AIG. It's also the biggest by a U.K. financial firm since Royal Bank of Scotland Plc bought National Westminster Bank for about $37.8 billion in 2000, Bloomberg data show.
In the NatWest takeover, "U.K. shareholders were paying for another European business whereas here, U.K. shareholders are ponying up for a business in Asia, which really shows how the world has moved on," Mark Bentley, a London-based senior adviser to SDC Group, a private investment group and family office. "We're seeing the dismantling of one global firm, AIG, and another seeking to get into high-growth markets."
Prudential plans to fund its purchase by raising $20 billion in a rights offering. That would be about equal to Lloyds Banking Group Plc's 13.5 billion-pound government-backed sale in December, still the biggest rights offering in the U.K. Prudential shares dropped 72.5 pence, or 12 percent, to 530 pence in London trading today.
Rights Offer
Credit Suisse, JPMorgan and HSBC Holdings Plc agreed to underwrite the $20 billion rights offer in full. Prudential said it will pay about $1 billion in banking and legal fees and other costs linked to the share sale. The banks are likely to line up Asian investors willing to buy stock Prudential shareholders don't purchase in the offering, according to Cass's Hahn.
"If Pru's existing shareholders don't pick this up, they can recycle those rights and sell to Asian investors," he said.
AIG said last May it would sell shares of AIA in an IPO after an auction of the division failed to turn up bids that matched what AIG executives thought the company was worth.
The decision to drop the IPO will deprive Deutsche Bank and Morgan Stanley of fees for overseeing the offering. The two might have made earned $158 million each from the IPO, assuming the IPO valued AIA at the same $35.5 billion that Prudential is paying and AIG sold 50 percent of its stake in the sale.
A typical IPO of that size in Hong Kong generates total fees of about 2.5 percent, according to documents released by the Federal Reserve last year. The joint global coordinators typically earn about 36 percent of the fee pool each, with the remainder going to the other underwriters, the document shows.
Morgan Stanley
Morgan Stanley may still earn about $52.5 million for advising the Federal Reserve Bank of New York on the AIA takeover, a schedule disclosed by the Fed last year shows. The New York Fed owns preferred interests in AIA and American International Life Insurance Co. following the bailout.
The team at Morgan Stanley advising the New York Fed included Eric Bischof, James Head, Peter Juhas and Jared Abbey.
MetLife Inc. has said it is in talks to buy Alico, which operates in more than 50 countries outside the U.S. A sale of Alico for about $15 billion would generate a $25.5 million fee for Morgan Stanley.
Founded in Shanghai in 1919, AIA will give Prudential a business with 20,000 employees and 250,000 agents in markets spanning China to Australia. AIA sells life, accident and health insurance policies, and private retirement planning and wealth management services, according to the company's Web site.
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