UK’s Prudential Confirms AIA Deal Still On

By and | May 28, 2010

The UK’s Prudential on Thursday denied market talk that it had pulled its $35.5 billion bid for U.S. rival AIG’s Asian unit, after rumors the deal was off boosted Pru’s shares as well as the pound. “This speculation is unfounded,” a Prudential spokesman said.

Prudential shares earlier rose by as much as 8 percent on talk the company had ditched its offer for AIA in the face of volatile markets and resistance from some shareholders.

Traders said the speculation also supported the pound, which rose to a two-week high against the dollar and an 11-month high against the euro. Pru would have to buy dollars to pay for the acquisition.

Prudential shares were up 4.8 percent at 537 pence ($7.816) by 1255 GMT, still outperforming a 3.5 percent rise in the European insurance sector.

Reuters had earlier reported that Prudential was pressing ahead with the takeover, citing sources close to the deal.

Prudential plans to finance the acquisition, the biggest ever in the insurance sector, with a $21 billion rights issue, and needs to garner 75 percent support for the deal at a shareholder vote scheduled for June 7.

INVESTORS WARY
But the outcome of the ballot is in doubt amid criticism from some investors that Prudential is paying too high a price and could face problems merging AIG’s Asian business, AIA, with its own Asian operations.

The influential Association of British Insurers, whose members control about a fifth of the UK stock market, issued a warning this week on the deal, telling investors to carefully consider their options.

Its “amber-top” notice — the second strongest option it has in its traffic light warning system — was “purely a routine reminder” an ABI spokesman said.

“Given the size and the complexity, shareholders need to look at it carefully, it would have been odd if we did not say that,” the spokesman said.

The warning adds to a report earlier this week from voting adviser RiskMetrics which told investors to vote against the deal on the basis of a full price, integration risks and ambitious targets.

Investor skepticism over the deal has been fuelled by snags including an unprecedented and unexpected regulatory hitch earlier this month and increasingly volatile markets.

(Additional reporting by Victoria Howley, Steve Slater, Tamawa Desai and the European stock market team; Editing by David Holmes and Hans Peters)

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