British insurer Prudential Plc hit a last-minute regulatory snag in its planned $35.5 billion acquisition of AIG’s Asian unit, forcing it to delay the launch of a bumper cash call and fuelling shareholder concerns.
Britain’s largest insurer said it was still in talks with the Financial Services Authority (FSA) over its capital position and would revise the timetable for its combination with American International Assurance, key to helping AIA’s bailed-out U.S. parent AIG repay taxpayer debt.
The delay to the issue, a prospectus for which had been promised for Wednesday, raised doubts over how well the bumper deal — orchestrated by Prudential Chief Executive Tidjane Thiam after only a year in the top job — was prepared.
“This does make us more anxious, absolutely. It’s shambolic,” one top-10 Prudential shareholder said. “If they cannot get this sorted out, it doesn’t give you a lot of faith in the due diligence across the whole deal. It’s not good — it doesn’t fill you with confidence.”
But Prudential said it did not expect the delay to affect the timing for the completion of the transaction, which it still anticipated to occur during the third quarter.
Prudential, which stands to become the largest foreign insurer in Asia if the deal goes through, said in a statement it expected to price and launch the $21 billion rights issue once discussions with the FSA are concluded.
LEVEL OF SUPPORT
Prudential needs 75 percent of shareholders to back its bid for the deal to go through. Support was thrown into doubt after the insurer’s largest shareholder, Capital Research & Management, voiced misgivings, according to newspaper reports.
Prudential did not specify the nature of the FSA’s concerns over the capital position of the enlarged group under the Insurance Groups Directive (IGD), used to measure regulatory capital surplus.
The FSA declined to comment.
“If (capital) is the issue, it suggests the FSA has changed its mind. Alternatively, perhaps there was something in the proposal that the FSA was not expecting, like a disposal,” said analyst Eamonn Flanagan of brokerage Shore Capital.
“It is too early to call the death of the deal,” Flanagan said. “There is shareholder dissatisfaction, but until investors actually have something to vote on, it is too early to talk about the implications of this delay for the wider transaction.”
News of the delay helped lift Pru shares in early trade, on relief it could be forced to drop the rights issue, but the stock pared those gains to trade up 0.5 percent at 561p by 0720 GMT.
At that price, Pru is worth just over £14 billion [$21.22 billion].
Analysts at Oriel Securities noted regulatory concerns over capital could also mean a larger rights issue.
(Additional reporting by Raji Menon; Writing by Douwe Miedema; Editing by David Holmes)