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Major Prudential Hlders Back AIA Deal, Rights Issue - Source

By Vladimir Guevarra and Jessica Hodgson Of DOW JONES NEWSWIRES LONDON -(Dow Jones)- Major investors in U.K. insurer Prudential PLC (PRU.LN) remain supportive of a $35.5 billion deal to buy American International Group Inc.'s (AIG) Asian life-insurance business AIA Group, despite the risks associated with the deal and an associated rights issue, a person familiar with the matter said Wednesday. Prudential's shares plunged 12% Monday and a further 8% Tuesday as investors fretted over the size of the deal, and in particular over the massive rights issue that Prudential plans to use in part to finance the acquisition. By late afternoon Wednesday, the shares had recovered somewhat, and were up 24 pence, or 4.9%, at 512 pence. AIG will be paid a total of $35.5 billion for AIA, comprising of $25 billion in cash and $10.5 billion in new Prudential shares and other securities. The cash component of the purchase will be financed through an underwritten rights issue, raising approximately $20 billion, and $5 billion of senior debt. Three key shareholders will hold the key to the success of Prudential's plan to transform itself into one of the world's largest insurance companies. Capital World, a fund of the Capital Group of Cos.; BlackRock Inc. (BLK); and Legal and General Group PLC (LGEN.LN) hold a combined 21% of Prudential's stock. Their level of support for its plans for the acquisition and the $21B rights issue needed to fund it, are crucial. All three declined to comment Wednesday. All of the remaining seven of Prudential's top 10 shareholders either declined comment or didn't respond to requests for comment. On Monday, Standard Life's head of U.K. equities, David Cumming, told BBC Radio 4 the deal could give Prudential a "very strong competitive position," and that investors would support the purchase as long as the capital-raising isn't excessive. Prudential has declined to comment beyond remarks it made when announcing the deal Monday. Its chief executive officer, Tidjane Thiam, said the company and its bankers had already received some initial support from key shareholders before the AIA deal was announced. "We can't reveal individual conversations, but we have brought over during this process a number of key investors who are supportive. And you can imagine that the banks would have conversations--without our presence--with some of our key investors to get comfortable before they decided to underwrite this rights issue." Thiam added Monday that he expects Asian investors to support the rights issue. Two people familiar with the matter said earlier Wednesday that Prudential is in preliminary talks with Singapore state investment company Temasek Holdings Pte., about potentially supporting the rights issue. Separately, three people familiar with the matter said Prudential has approached Asian banks, including Singapore's DBS Group Holdings Ltd. (DO5.SG) to underwrite the share issue, along with Credit Suisse (CS) JP Morgan Cazenove (JPM) and HSBC Holdings PLC (HBC). Another person familiar with the matter said a large syndicate of banks was expected to underwrite the deal. One person familiar with the deal said that Prudential's major institutional shareholders had been on board with the acquisition of AIA, which will transform the U.K. insurance firm into a giant with a No. 1 position in every major Southeast Asian market, before the deal was announced. These institutions were braced for a sell-off after the announcement of the rights issue, but despite some short-term anxiety about the level of the sell-off Tuesday, they remain on board, this person said, without providing more specific details. Nevertheless, significant concerns remain about the complex integration required to make the deal a success, and particularly the rights issue. Fitch Ratings flagged the likelihood of a potential downgrade. Moody's affirmed Prudential's senior debt rating but with a "negative outlook." Standard & Poor's said that uncertainties around the deal could have "negative credit rating implications" for Prudential. Shares issued are expected to be sold at a significant discount. Two people familiar with the matter told Dow Jones that a discount of up to 40% would be likely, a figure also cited by the CEO as reasonable. Shareholders will vote to approve the deal and the rights issue in May, Prudential said in a statement when it announced the deal. Company Web site: www.prudential.co.uk -By Vladimir Guevarra, Dow Jones Newswires. Tel. +44 0207 842 9486, vladimir.guevarra@dowjones.com -By Jessica Hodgson, Dow Jones Newswires; +44 207 842 92 93; jessica.hodgson@dowjones.com (P.R. Venkat and Sam Holmes contributed to this article.)

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