Prudential Plc said it's in talks to pull out of its US$35.5 billion takeover of American International Group Inc.'s main Asian unit after failing in its attempt to cut the price.
London-based Prudential said if the deal with AIG to buy AIA Group Ltd. is terminated, as it expects, the board will scrap plans for a rights offer that would have helped fund the purchase. Ending the deal will cost Prudential about 450 million pounds ($660 million), including a break fee of 153 million pounds, it said.
Prudential Chief Executive Officer Tidjane Thiam sought to cut the price by $5.1 billion after shareholders including BlackRock Inc. said the transaction was too costly, a person familiar with the deal said last week. The failure of the acquisition may place pressure on the management of Britain's biggest insurer and delay AIG's plans to repay part of its $182.3 billion U.S. government rescue package.
"We agreed with shareholders that a renegotiation of the terms was necessary given market movements but it has not proved possible to reach agreement," Thiam said in the statement today.
AIG will push on with an initial public offering, probably in October, CNBC reported yesterday, citing an unidentified person familiar with the situation.
Thiam, who took over as CEO in October, "will probably have to review his position," said Paul Mumford, who helps manage 417 million pounds including Prudential shares at Cavendish Asset Management Ltd. in London. Mumford opposed the deal when it was announced in March.
The original takeover offer included about $25 billion in cash and the rest in securities linked to Prudential shares. Prudential's planned revision to $30.4 billion included $23 billion in cash, the insurer said yesterday.
The combined company would have created the largest life insurer in Hong Kong, as well as in Singapore, Malaysia, Thailand, Indonesia, the Philippines and Vietnam.
Prudential's shareholders may now favor breaking up the business, according to Rupert Armitage, head of U.K. equities at Shore Capital Group Ltd.
"It leaves them very vulnerable to a break up," he said in a Bloomberg Television interview. "The chairman and the CEO, having staked their reputations on it, it puts them in an almost untenable position."
Prudential's bid was hurt by a series of mistakes in dealing with regulators and shareholders. The 162-year-old British insurer also was trying to pull off a $21 billion rights offer, the biggest for an acquisition in history, at a time when Europe's sovereign debt crisis was hurting corporate fundraisings worldwide.
Ivory Coast-born Thiam, 47, was criticized by shareholders in March for agreeing to join the board of Paris-based bank Societe Generale SA, a decision he reversed a day later. Prudential was also forced to delay the start of its rights offer in May after the U.K. regulator asked the firm to hold more capital in reserve.
Neptune Investment Management Ltd., a London-based investor, said on May 26 it had 20 percent of shareholders to back its opposition to the transaction. Thiam, who needed 75 percent of shareholders to back the offer, made a failed attempt to resurrect the deal by asking AIG to reduce the price two days later.
The takeover was to be the world's biggest this year, according to data compiled by Bloomberg. The collapse of the deal deprives Prudential's advisers of as much as 850 million pounds in fees.
Prudential is being advised by Credit Suisse Group AG, JPMorgan Cazenove, Lazard LLC and Nomura Holdings Inc. AIG is being advised by Blackstone Group LP, Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc. and Morgan Stanley.