Prudential Won’t Increase Am Gen Bid

April 6, 2001

Prudential (U.K.) announced that it did not intend to increase the value of its bid for American General by offering additional cash to its shareholders. This increases the likelihood that AIG’s counter offer will ultimately be accepted by Am Gen’s Board of Directors, who are currently “carefully considering” AIG’s proposal, and then by its shareholders.

Pru is in a bind. It cannot increase the number of shares, as it would lose control of the company, and it doesn’t have the cash to make a sizable counter offer. It can’t back out of the deal first without jeopardizing the $600 million termination fee it would receive if Am Gen chooses another partner, and therefore, has to insist that the buyout of Am Gen is a “done deal,” a position which appears increasingly untenable.

In addition, while Pru’s shares have risen, as its chances of acquiring Am Gen have decreased, any show of strength involved in a counteroffer would undoubtedly send them plunging again, thereby decreasing the value of the deal to Am Gen, and further eroding their value in the eyes of other potential partners.

Speculation in London is already centered on where the company goes from here. If it cannot find a substantial U.S. partner, it might well put its U.S. subsidiary,Jackson Life, up for sale, and concentrate on its expanding business in Asia and Europe. The failure of the Am Gen deal has made it more difficult to reach an agreement with a U.S. insurer, but leaving the lucrative and expanding U.S. market, would mean abandoning a solid source of growth.

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