Prudential picks AIG Asian life biz for $35.5 billion

Prudential picks AIG Asian life biz for $35.5 billion

Prudential Chief Executive Tidjane Thiam The acquisition will be financed in part by a $20 billion equity capital raising, one of the biggest cash calls ever, and by a $5 billion debt issue, Prudential said on Monday, confirming an earlier Reuters report.

Investors and analysts said they needed to know more about the finances of the AIG’s Asian unit, AIA, before they could judge whether the deal could justify a capital-raising on that scale.

At $20 billion, the rights issue would rank as one of the largest cash calls in the world to date, nearly equaling Pru’s current market value of $23 billion.“Fifteen billion pounds is a huge amount and I would want to see more details of the kind of return profile and the timetable for that,” said one top ten Pru shareholder, speaking before Prudential confirmed the deal.

A takeover of 90-year old AIA would make Prudential Asia’s biggest foreign insurer, boosting the company’s appeal to investors seeking exposure to soaring demand for personal financial services across the region, fueled by strong economic growth.
Prudential is already among the top foreign insurers in Asia, generating nearly half its 2008 profit there, and has stated its ambition to broaden its footprint across the region. The acquisition, which comes after an initial approach for AIA by Prudential fell through last year, marks the company’s first major transaction under charismatic new Chief Executive Tidjane Thiam, who took over the top job in October. Earlier, British insurance-focused takeover vehicle Resolution said it was not in talks to buy Prudential’s UK arm. A weekend press report had said Pru might offload the unit to Resolution in the event of the AIA acquisition going ahead. “This transaction, the most significant milestone to date in our ongoing effort to repay taxpayers, also gives us greater flexibility to move forward with AIG’s restructuring and focus on enhancing the value of our key insurance businesses, which will benefit all stakeholders,” AIG President & Chief Executive Officer Bob Benmosche said while announcing the deal.

Liquidation preference
The cash portion of the proceeds from the sale will be used to redeem preferred interests with a liquidation preference of US$16 billion held by the Federal Reserve Bank of New York (FRBNY) in the special purpose vehicle formed to hold the interests in AIA, and to repay USD 9 billion under the FRBNY credit facility. “In considering two viable, very attractive alternatives to successfully monetise AIA, including an initial public offering, we decidAIG President & Chief Executive Officer Bob Benmoscheed that a sale to Prudential enables AIG to realise value on a faster track to repay the US taxpayers,” AIG President Benmosche added.

Further,  AIG intends to monetise the US$10.5-billion in face value of Prudential securities over time. All net cash proceeds from the monetisation of these securities will be used to repay any outstanding debt under the FRBNY credit facility. The AIG board, which is nearly 80 per cent owned by the US government, and Prudential has approved the transaction which is to close by the end of 2010. The transaction is subject to approval by Prudential shareholders, regulatory approvals, and customary closing conditions.
“Combining Prudential, which has long been committed to enhancing its profile in Asia, and AIA, a remarkable Asian franchise, will create an unrivalled life insurance powerhouse in Asia, one of the world’s fastest growing markets,” Benmosche added.

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