Prudential deal near collapse as AIG snubs lower offer

Tidjane Thiam, Prudential’s ambitious new boss, had faced rising shareholder pressure about the hefty $35.5 billion price tag for American International Assurance (AIA), forcing the 47-year-old executive to last-minute talks over a lower price.

Britain’s largest insurer had proposed to shave off $5 billion off its cash-and-shares offer and reduce the price tag to $30.375 billion, it said on Tuesday.

But AIG’s terse statement that it would stick to the original terms of the deal, left Ivory Coast-born Thiam — who launched the bid after just six months in the job — with few options to save the deal.

“The good thing would be for the Pru to withdraw gracefully,” said Paul Mumford, senior fund manager at Cavendish Asset Management. “If they do put it to a vote, I’d be very surprised if shareholders vote it through.”

Prudential has said it would make a further statement “when appropriate.” Its top management was talking to its top shareholders ahead of a final decision on the board which could come as early as later on Tuesday.

The company has little time left ahead of a shareholder vote planned for June 7, meaning that large investors will have to make up their minds within days in the unlikely case that it wishes to proceed with the deal.

Prudential was dramatically forced to reopen price negotiations with AIG last week as it feared it might fail to attract the required 75 percent approval for the deal and a related $21 billion rights issue.

The unraveling of the insurance sector’s biggest deal would put paid to Prudential’s plan to transform itself into a largely Asia-focused business, and is likely to revive speculation of a break-up bid for the group.

Failure would also cast doubt over the future of Thiam, who has sometimes been described as “arrogant” by investors to whom he has been pitching the deal in the last few weeks.

“Pru will have to explain to us what is strategic plan B,” said one shareholder, speaking on the condition of anonymity.

“You are probably talking about putting the company under strategic review and maybe not under the current chief executive,” the shareholder said.

A failure of the deal would also be a blow to AIG boss Robert Benmosche, who wants to use the proceeds of the AIA disposal to repay part of the $132 billion bailout the U.S. insurer received at the height of the financial crisis.

Prudential shares were up 3.6 percent at 561 pence at 1022 GMT, outperforming a 1.7 percent drop in the European insurance sector, helped by relief that the company may not now launch its highly dilutive rights issue.

Inevitably, a failure of the bid would also bring back speculation of a break-up of Prudential, though a lack of well-funded buyers would make imminent takeover bids for Prudential unlikely.

“There’s a possibility of that in the medium to long term, but I don’t see it in the short to medium term,” said Panmure Gordon analyst Barrie Cornes. “I don’t think there are any obvious takers.”