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Move to woo shareholders’ backing for its AIA acquisition

LONDON: British insurer Prudential launched its long-awaited US$21bil cash call and a delayed offensive to woo wary shareholders to back its takeover of rival AIG’s Asian unit.

Britain’s Financial Services Authority forced the country’s largest insurer to revise its US$35.5bil offer in an embarrassing and unprecedented last-minute delay nearly two weeks ago, telling it to boost capital.

Yesterday’s pricing of the deeply discounted rights issue and details of the agreement with the British watchdog have put the deal – a key part of plans to help AIG repay the US government – back on track, and chief executive Tidjane Thiam said he was confident shareholders would back the takeover.

“We were a little bit like a fighter fighting with one arm behind his back.

“We were handicapped, we weren’t able to answer a lot of questions,” Thiam said of conversations with shareholders in recent weeks, adding investors had given Prudential “the benefit of the doubt.”

“Overall we feel confident they will support this. We always knew this would be a long, complex and challenging process – what we are attempting has never been attempted before.”

Prudential would benefit from money already set aside when AIG was considering an IPO of its Asian unit American International Assurance (AIA), Thiam said.

Prudential will sell new shares at 104 pence, a 39% discount to the theoretical exrights price – in line with rights issues in the financial sector through the financial crisis – and an almost 81% discount to Friday’s close.

But shareholders indicated that modest improvements to synergies and hints at Asian disposals might not be enough to win over the 75% support needed to secure the deal and salvage the tarnished credibility of its top management.

”I don’t think it’s going to be easy for them to get the backing of enough shareholders.

“They will struggle to get the vote through,” said one top-20 investor, asking not to be named.

Paul Mumford, of Cavendish Asset Management which has a £2.5mil holding in Prudential, said he was still concerned over the size of the cash call, one of the largest ever.

“Personally, I’m feeling a bit dubious as to whether it is the best thing for shareholders. They have got some punchy targets looking forward in terms of profitability of the group, but it does rely on the Far Eastern markets – they have got more eggs in one basket than before the issue,” he said.

Prudential and its banks will offer fund managers a fat sub-underwriting fee of 2%, sources familiar with the situation told Reuters. They normally get 1.5% to 1.75% out of a total 3.5%.

Source: The Star Online