Prudential Confirms Termination Of AIA Deal Print E-mail

TEP – 3 June 2010

U.K. insurer Prudential plc confirmed Wednesday that it has terminated its deal to buy AIG wholly-owned Asian insurance unit AIA.

Prudential plc will pay AIG a termination fee of GBP 152.57 million. The company added that AIG and the company have agreed to release and waive any claims they may have against each other.

Under the deal between AIG and Prudential, the total consideration included $25 billion in cash, $8.5 billion in face value of equity and equity-linked securities, and $2.0 billion in face value of preferred stock of Prudential, subject to closing adjustments. Prudential’s plan was to raise the cash component of the deal through a $20 billion rights issue and $5 billion in senior debt.

Later, Prudential tried to reduce the purchase price to $30.38 billion, as its shareholders believed the deal was too expensive

While Prudential needed approval of 75% of its shareholders for the AIA deal, institutional investors with more than 15% of Prudential stock and private shareholders owning almost 5% had planned to oppose the deal. Shareholders were set to vote on the deal at the company’s annual general meeting to be held on June 7.

However, AIG said Tuesday that it would not consider revisions to the agreement terms it reached earlier with Prudential. AIG, one of the companies that was hit hard by the economic crisis, is about 80% owned by the U.S. government.

The company, which received $182.5 billion in government aid, is selling assets to repay the bailout amount. The U.S. Treasury took control of AIA after bailing out its parent company AIG.

Media reports last month had said the Treasury was re-looking at plans for a stock market flotation of AIA in the event Prudential’s takeover bid for the unit failed. The Treasury’s concerns were prompted by hitches to the deal and particularly to the rights issue that Prudential had planned to launch to fund the acquisition.

The Treasury is said to have approached several Asian financial-services firms to explore the alternative plan, including China Life, Ping An, Bank of China and ICBC, about taking large stakes in an IPO. .

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