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Prudential preparing for £23bn AIG Asian deal

PRUDENTIAL, the largest insurer in Britain, is on the verge of an audacious takeover of the Asian operations of American International Group valued at around £23bn.

The Pru would raise £15bn through a mammoth rights issue to help fund the transaction, which would transform it into the most powerful insurance player in the high-growth Far East. If the deal goes ahead it would surpass the record £13.5bn Lloyds Banking Group raised through its recent rights issue.

Prudential has made no secret of its desire to crank up the proportion of sales it derives from Asia from the current level of 40 per cent. But it will need to convince shareholders the swoop on American International Assurance (AIA), which boasts 20m customers across 13 Asian markets, is worth shelling out for.

Over the weekend, Prudential chief executive Tidjane Thiam was in New York putting the offer to AIG’s board. He will need the approval of the US giant’s three government trustees, who oversee Washington’s 80 per cent stake in the beleaguered insurer, bailed out several times by taxpayers at the height of the financial crisis. A staggering $182bn was pumped into the company by the government.

An announcement on the deal to the London Stock Exchange is expected as early as this morning. Thiam is racing against the clock as AIG had been grooming AIA for a March flotation, which would have raised an estimated £13bn on the Hong Kong Stock Exchange. The listing would have funded a part-repayment of the $80bn (£52bn) still owed to Washington. The initial public offering (IPO) was put on ice as talks with Prudential entered a closing stage.

Because of AIG’s state ownership, the bulk of the offer would have to be settled in cash.
Prudential is understood to have lined up financing with HSBC, JPMorgan and Credit Suisse to support its planned share issue, and would not need to sell parts of its UK business to fund the bid.
All three banks, along with Lazards, will advise on the deal. Credit Suisse’s involvement as adviser has caused some consternation as it is also listed as a book-runner for the AIA flotation, should the Prudential deal fall through.

Although Prudential does not need to sell, Clive Cowdery’s Resolution buyout vehicle is believed to have approached Thiam about a purchase of the Pru’s UK life insurance operations. Analysts say Cowdery is keen to consolidate on his acquisition of Friends Provident last year with another deal.
AIG is also believed to be close to completing a deal to offload Alico, whose operations are focused in Japan and Europe. MetLife is lined up to buy the firm for a fee in the region of $15bn. The deal has been delayed by an unresolved tax issue and could yet be blocked by the US Internal Revenue Service.