AIG, American General Talk – Pru Sues

April 11, 2001

The fight between AIG and Britain’s Prudential to take over Houston-based American General heated up considerably on Tuesday. AIG signed a confidentiality agreement with Am Gen, and began discussions aimed at reaching an agreement. Meanwhile, Prudential plc, filed suit against AIG in Texas State Court in Harris County, charging that it had illegally interfered with Pru’s agreement to acquire Am Gen by not filing the proper documents with the Securities and Exchange Commission and other regulatory authorities before making its counteroffer.

A day after Am Gen’s board approved discussions with AIG, the two companies signed the agreement and stated that “the parties will commence discussions immediately regarding AIG’s April 3, 2001 offer to acquire American General.” Initially they’ll have to determine if AIG’s bid is a “superior proposal,” to Pru’s offer. This is presently the case as far as their respective share values are concerned. Then it would be up to AIG to present a more formal offer than the one contained in CEO Maurice Greenberg’s letter.

Prudential, however, has decided that it will not give up on Am Gen without a fight. Although its application for a temporary restraining order, which would have immediately prohibited AIG from continuing its offer until it complied with applicable regulations, was denied by the Texas court, it agreed to hold a hearing next week on Pru’s application for a temporary injunction aimed at obtaining the same relief.

The legal action for tortious interference is unusual in merger situations, where higher and competing bids are not uncommon. While Pru’s suit contains damage claims, it’s essentially seeking to stop the discussions between AIG and Am Gen. Most commentators feel that this is unlikely, as it would deprive Am Gen’s shareholders of the increased value for their interest contained in AIG’s potentially “superior proposal.”

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