It now looks like Prudential will launch the £14bn rights issue it needs to buy AIA by next week. The FSA had blocked purchase of AIG’s Asian Insurance arm (AIA) due to concerns the deal would leave Prudential with insufficient capital to satisfy IDG rules. The deal has been restructured with AIG agreeing to reduce the cash required by $2bn. The purchase faces further hurdles since approval is required from UKLA after which Prudential will have to sell the deal to investors. It needs 75 percent of shareholders to approve the takeover. The company could lose millions in penalties if the sale is not completed by 31 August while failure of the deal would result in a penalty of £153 million.

Successful takeover of AIA will see Prudential become the largest life insurer in world outside China and its Chief Executive, Tidjane Thiam, said he was prepared to put his neck on the line to persuade shareholders to accept the deal. However some investors are not happy with the way the process has been managed and feel the price is too high. Neptune Investment Management, a “small” shareholder, has launched a website opposing the deal which they feel poses “significant risk to shareholders”. The new agreement on restructuring the offer doesn’t make AIA any cheaper since the $2bn cash is exchanged for a loan or hybrid securities. In fact it will make AIA more expensive due to higher interest payments. There have been rumours the largest Prudential shareholder feels there would be more value if the company was broken up. Another potential issue is Prudential would no longer be a predominately UK insurer since most of its business would be in Asia. Under these circumstances it’s possible some UK focussed funds would be forced to give up their holdings. Problems with the rights issue has resulted in a delay to its listing on the Hong Kong and Singapore Exchanges.

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