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Regulators in the United Kingdom threw a wrench into British insurer Prudential PLC's plan to buy American International Group Inc.'s (NYSE: AIG) Asian insurance unit, delaying its $21 billion rights offering until the two parties agree the combined company will have adequate capital.
The delay, or any disruption to the proposed takeover deal, could mean a major setback for AIG's efforts to raise funds to pay back its debts to the U.S. government.
Prudential had planned to issue a prospectus with details of the offering yesterday (Wednesday), including how many new shares will be issued and at what price to shareholders. But the British government's Financial Services Authority (FSA) put the deal on hold with a last minute request for further unspecified information.
The FSA only told Prudential and its advisers late Tuesday that it needed more time to review the figures, people familiar with the matter told The Wall Street Journal.
"It's come out of the blue," Paul Mumford, who helps manage $908 million (600 million pounds) including Prudential shares at Cavendish Asset Management Ltd. in London told Bloomberg News. "Everyone was expecting the prospectus to come out this morning. It's quite embarrassing."
Prudential still expects to complete the $35.5 billion purchase of AIA Group Ltd., AIG's Asian insurance assets, in the third quarter, spokesman Robin Tozer told Bloomberg. He was unable to give a timeframe for when Britain's largest insurer will start the share sale.
AIG spokesman Mark Herr also said the deal remained on track.
"AIG and AIA are working closely with Prudential to complete the AIA-Pru transaction on its announced schedule," told The Journal.
The deal, which prompted a major sell-off in Prudential's shares when it was announced in March, calls for Prudential to hand over shares and other securities, valued at $10.5 billion, and $25 billion in cash to U.S. government-owned AIG as payment for AIA.
Uncertainty has dogged the deal since it was announced March 1 because Prudential's biggest investors were said to be resisting the deal on grounds the company is paying an overly rich premium for AIA. Prudential's shares have since recovered after dropping 20% in the two days after the deal was announced.
Recent reports suggested that London Capital Group Holdings plc (LON: LCG), which owns roughly a 12% stake in Prudential, is seeking support from other shareholders to break up Prudential instead of pursuing the AIA acquisition. Capital Group hasn't commented on its stance.
The AIA deal and the rights issue need 75% approval from voting shareholders, and some analysts have said there is a chance the deal could still unravel because the AIA price tag looks expensive and integration could be difficult.
Money Morning Contributing Editor Martin Hutchinson saw this imbroglio coming. He questioned the deal a day after it was announced on March 1.
"Prudential is paying $35 billion for AIA, which is $15 billion more than the $20 billion AIA was thought to be worth as a stand-alone business. To buy it, Prudential is going to issue shares to AIG, as well as undertaking a $20 billion share issue that will double its capital and dilute the hell out of existing shareholders," Hutchinson wrote. "In other words, it's just about as bad a deal as possible for existing Prudential shareholders."
The delay "does not look good," Oriel Securities analyst Marcus Barnard told The Journal, and puts into question whether the May 27 shareholders' meeting to approve the AIA deal is still on.
"It is embarrassing to have to delay the announcement, and this will only raise concerns that either the deal will not happen or that shareholders will have to put up more capital," he said.
A person close to the transaction told The Journal the issue may revolve around capital that Prudential hopes to extract from the Asian businesses but has yet to secure approval from those countries' regulators to include it in its capital calculations.
"It is not clear what the issue is, but we can only assume that the FSA wants the company to have more capital, or a higher quality form of capital, but both would suggest a bigger rights issue than initially planned," Barnard said.
News & Related Story Links:
- Wall Street Journal:
Prudential Delays Rights Prospectus - Bloomberg:
Prudential Delays Start of Offering on Capital Talks - Money Morning:
Shareholder Concerns Snag Prudential's $35.5 Billion Deal For AIG's Asian Unit - Money Morning:
Prudential-AIG Deal Another Case of Corporate Empire Building - Money Morning:
Prudential Takes Control of Asian Insurance Market With Purchase of Foreign AIG Unit
Euro false highs and the problem with insurers like AIG is that no matter what the name of the insurer is (it probably is ZFS) Zurich Financial Services Group. ( So whoever you are insured with, it will most likely be ZFS, this organisation is split into many hundreds of different named companies whom have been named and fined countless times. AIG is just one name of this company, Goldman Sachs share same CEO. If I remember correctly AIG was bailed out and was also fined $1.2 Billion for Fraudulent activities bid rigging etc. Shortly after AIG in the US was fined, AIG in the UK was raising a similar amount from new share offers. ZFS the parent has global operations in most countries – to many to list. Most of its asset base is offshore and if someone took the time they would notice that their insured risk is many hundreds of thousands greater than they have assets. Because they themselves are the re insurers, re-insuring affiliate group companies. Fraud appears to be 2nd nature to this company. Zurich Financial Services is corrupt and insolvent, propped up by taxpayers. Now its time to break it up and sell it off, then regulate all Insurers, Banks, Financial, or similar organisations appropriately. And stop BIS bank of international settlement colluding with central banks to fix euro higher than par value to the advantage of Zurich, banking finance and insurance. While further class actions pile on the misery for the experts in own corporate annihilation. At present all have limited liability to you, that’s worth nothing, Z ulch. If Prudential share holders look at SEC files NY the price asked will suddenly look very overpriced, suspected valuation is much less say 85% less and even then conditions –Should apply to any deal hardballed through given the worthless asset name AIG.
regards Gordan hope this helps
cool info
[…] Television interview. There is still a "lot of risk for the American taxpayer." British insurer Prudential PLC recently scrubbed its plan to buy AIA Group Ltd., AIG's biggest Asian life insurance …, a setback to AIG's efforts to repay taxpayers. Jim Millstein, the Treasury's chief restructuring […]