Prudential Plc, the UK insurer seeking to buy American International Group (AIG) Inc’s Asian unit in a $35.5 billion acquisition, said it’s talking with AIG about changing the terms of the deal.
Discussions between the companies “may or may not lead to a change in the terms of the combination,” Prudential said today in a statement. Chief Executive Officer Tidjane Thiam was in New York yesterday to make his case to executives that the price for AIA should be cut, a person with knowledge of the situation said.
Thiam is facing criticism from major investors as he asks for $21 billion, the biggest rights offer for an acquisition on record. Prudential’s market value is $20 billion. The deal has already been delayed by the UK regulator over concerns about the insurer’s capital reserves, and the biggest decline in equity markets since the financial crisis has dampened investors’ enthusiasm for the takeover.
“It’s probably the least ideal market to raise capital,” said James Buckley, a London-based fund manager at Baring Asset Management Ltd who helps oversee $44 billion, including Prudential stock. “The market is not completely closed for small rights offers, but for major deals like Prudential, it’s inevitably tough.”
F&C Asset Management Plc and Cavendish Investment Management Ltd., which each hold less than 1 per cent of Prudential, according to data compiled by Bloomberg, both said they planned to vote against the acquisition today.
Investors owning as much as 20 per cent of Prudential stock plan to oppose the takeover at the annual general meeting on June 7, Neptune Investment Management Ltd, a London-based shareholder, said this week. Thiam needs 75 per cent of investors to support the rights offer for the deal to succeed.
BlackRock Inc and Fidelity Investments are among major Prudential shareholders that have voiced concern the deal is too expensive, said the person, who declined to be identified because the discussions are private. Some shareholders are demanding a reduction to as low as $30 billion, a price AIG’s board is unlikely to approve, the person said.
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“We have a signed agreement with Prudential, and we expect them to use their best efforts to live up to it,” Mark Herr, a spokesman for New York-based AIG, said late yesterday.
Speculation the deal would collapse was “unfounded,” Prudential spokesman Ed Brewster said earlier this week. “The acquisition of AIA by Prudential represents a compelling combination that can deliver very attractive long-term returns to our shareholders,” he said.
The US Treasury Department, which helped fund the $182.3 billion bailout of AIG, hasn’t asked the company to find a compromise on the AIA deal, spokesman Andrew Williams said in an e-mail. He commented after the Daily Telegraph reported that the Treasury encouraged the insurer to negotiate to preserve the takeover of AIA.
AIG, which is selling assets to repay the US bailout, had been planning a public offering of AIA until announcing the Prudential deal in March. AIG could return to the public-offering option if Prudential shareholders reject the deal, Jim Millstein, the Treasury’s chief restructuring officer, said this week in Washington.
“It would certainly be a mistake to not be willing to renegotiate,” said Chapdelaine Credit Partners (New York) managing director Angelo Graci. “There are meaningful risks to going back and pursuing an IPO; it would take longer, and the valuation would have a significant amount of uncertainty.”