Major Prudential Hlders Back AIA Deal, Rights Issue - Source
March 03 2010 - 10:39AM
Dow Jones News
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.)
CAI (NYSE:CAI)
Historical Stock Chart
From Mar 2024 to Apr 2024
CAI (NYSE:CAI)
Historical Stock Chart
From Apr 2023 to Apr 2024