PRUDENTIAL’S audacious takeover of AIA in Asia is teetering on the brink after the City watchdog blocked the insurer’s plan to raise $21bn (£14bn) through a bumper rights issue.
The FTSE 100 company was humiliatingly forced to delay the publication of its cash call prospectus yesterday following a veto from the Financial Services Authority, which was worried about the capital strength of the combined group after the merger. Having ignored the FSA’s concerns for months, chief executive Tidjane Thiam and the board scrambled through the night but failed to patch up a compromise.
The news shocked the stockmarket and infuriated shareholders, one of whom branded the affair “shambolic”. Investors’ confidence in the $35.5bn buyout of AIA has already been tested by a series of calamities.
One top 20 shareholder told City A.M. Prudential’s haggling with the FSA was “a bit late in the day”. “That is a discussion they should have had with the regulator quite early on,” he said. “It doesn’t reflect well.”
Another shareholder, Paul Mumford of Cavendish Asset Management, described the setback as a “major embarrassment”.
He added: “The whole affair is fraught with uncertainty – a number of things have gone wrong now. It doesn’t cover management with much honour. It’s bizarre.”
Prudential insisted the deal was on track to go through in the third quarter. However, it may have to push back the dates for listing in the Far East and voting on the rights issue.
Frustrated shareholders now believe the AIA swoop could be derailed as Prudential will struggle to get the 75 per cent approval it needs for the cash call go ahead.
The transaction is also threatened by the FSA. The watchdog fears that too much of the combined group’s capital would be tied up in Asia, making it difficult to access during times of stress. Prudential may have to raise up to $3bn extra to satisfy the FSA.
Prudential is likely to be dismembered and sold off to the likes of Clive Cowdery’s Resolution and Aviva if the AIA deal falls apart. Thiam and chairman Harvey McGrath would be certain to fall on their swords.
TOP TEN SHAREHOLDERS
1. Capital Research
3. Legal & General
4. Norges Bank
5. UBS Global Asset Management
6. Aviva Investors
7. Lansdowne Partners
8. Vanguard Group
9. M&G Investment Management
10. Baillie Gifford