EUPHORIA surrounding Prudential’s £23bn purchase of American International Group’s Asian arm turned into concern yesterday as its share price lurched downwards for the second day in a row.
Prudential’s paper fell eight per cent to 487.5p, down from its pre-deal level of 602p. Investors are worried about the dilutive effect of the £13.4bn rights issue the company plans to hold to part-fund its takeover of American International Assurance.
Ratings agency Fitch added to Prudential’s headache by placing the firm on “watch negative” due to the terms of the tie-up, which would create an insurance mega-player in the Far East with more than 30m clients.
Fitch said: “The rating action centres on the agency’s caution around the risks in executing such a large transaction and around Prudential’s reliance on significant profitable growth of the business that would be acquired.”
Last night fund managers warned the takeover would be difficult to seal should Prudential’s shares stay below the 500p mark. Just under a third of the price tag is to be settled with Prudential shares, while the cash call becomes more dilutive the lower the company’s share price falls.
One New York-based hedge fund manager said: “Once the shares start going down it’s a vicious circle.”
Sources close to Prudential said a declining share price was normal after announcing a large rights issue.