The Star Malaysia Saturday May 29, 2010
HONG KONG: Prudential said it was trying to negotiate a cut in the US$35.5bil it has agreed to pay for American International Group's (AIG) Asian unit, AIA, amid fears its shareholders might block the deal as too expensive.
"We confirm that discussions regarding the current status of the transaction have taken place between Prudential and AIG and are continuing," Prudential said in a statement yesterday.
"These discussions may or may not lead to a change in the terms of the combination of AIA Group Ltd and Prudential," it said.
Reuters had earlier reported that Prudential was trying to cut the cost of the AIA takeover amid rising pressure from investors.
One source close to the deal told Reuters Prudential was pushing to reduce the price by US$5bil, a reduction of 15%.
"A revised proposal has been submitted to AIG, with a price tag of about US$30bil," the source said.
Prudential's London-listed shares were down 0.6% at 544p at 0747 GMT.
Prudential plans to part finance the deal, the insurance sector's biggest-ever acquisition, with a US$21bil rights issue, but investor support for the fundraising is in doubt after some said AIA's purchase price is too high.
In order to proceed, the deal, which would allow bailed-out AIG to repay a big chunk of its debt to the US taxpayer, needs to get 75% approval at a shareholder vote scheduled for June 7.
Any change to the price should reflect integration risks that Prudential would face, said Patricia Cheng, an analyst with CLSA.
"Prudential's target, to triple AIA's new business value by 2013, looks too aggressive," she said. "The price can't be based on this target. But the price can't get much lower either. Investors have an idea of these integration risks and I don't think they are likely to agree to the deal."
Said a person with knowledge of the matter: "Technically, the price can be negotiated up or down, but the question is whether there is the will to do so.
"A reduction in the price by US$5bil would be a significant 14% reduction in the price agreed. It may be enough to appease shareholders and get the deal done," Oriel Securities analyst Marcus Barnard wrote in a note.
On Thursday, Prudential's London-listed shares rose almost 7% on market talk it may call off the deal or fail to get the required 75% shareholder approval to get it done.
Ahead of the June 7 investor vote, an influential voting adviser, RiskMetrics, has told investors to vote against the deal.
AIG's majority owner, the US Treasury, has maintained that it has the option to revive the planned initial public offering of AIA it was pursuing before Prudential's bid. — Reuters
AIG had quashed that plan in favour of the Prudential deal, but there were serious misgivings about the takeover among AIA staff and chief executive officer Mark Wilson has threatened to quit if the deal goes ahead, the Financial Times reported earlier this week. — Reuters
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