Prudential PLC (PRU.LN) faces paying hundreds of millions of dollars in fees if its planned acquisition of American International Group Inc.'s (AIG) Asian insurance business is delayed or collapses.

The fees are likely to raise questions over the handling of the deal, which Wednesday faced a delay due to concerns from the U.K.'s financial regulator. The acquisition has been seen as risky since it was launched, due to the size of the rights issue.

Prudential, which in March agreed to pay $35.5 billion to acquire AIA Group Ltd. in potentially the largest insurance takeover in history, said Wednesday it has had to delay a massive rights issue associated with the deal because of unresolved discussions with a U.K. financial regulator about its capital position.

Prudential said it is in "continuing discussions" with the Financial Services Authority, which regulates U.K. financial services businesses, over the capital position of the enlarged group which would be created by the AIA takeover.

Prudential said it is delaying the $20 billion issue which is being used to part fund the transaction, without providing a fresh timetable.

According to documents Prudential provided to outline the planned combination, the insurer is required to pay a termination fee of GBP153 million in the event of "termination in specified circumstances."

Additional fees worth $104 million per month from September are also due to AIG if the deal isn't completed by Aug. 31, according to the document. Prudential declined to comment on the break fees.

Banks working on the deal could lose out to the tune of hundreds of millions of dollars if the acquisition is canceled.

Credit Suisse Group (CS) and JP Morgan Cazenove, a unit of JP Morgan (JPM), that are joint global coordinators and joint bookrunners on the deal, along with Lazard Ltd. (LAZ), and HSBC Holdings PLC (HBC), that are advisers to Prudential, were expected to pick up the lion's share of a roughly $600 million fee pool associated with the deal. The estimated size of the fee pool was calculated by Freeman & Co., a boutique M&A adviser, at the time the deal was announced.

A huge syndicate of more than 30 banks in total is underwriting the rights issue. The deal is fully underwritten, which means that should investors fail to subscribe to new shares the company would still get cash from the banks.

It is unclear whether the banks will still get their fees if the deal collapses or is significantly delayed. Banks typically don't receive the bulk of their pay for advisory and underwriting services until a deal is completed, although they may receive some costs at the beginning of the process.

Credit Suisse, JP Morgan and HSBC declined to comment on the fees associated with the deal. Lazard couldn't immediately be reached for comment.

Wednesday's delay is the latest setback for Prudential. Shares in the U.K. insurer fell by almost 20% in the two days after the acquisition plan was unveiled amid concern that the deal would fail to win shareholder backing. More recently, U.K. press reports said Capital Group Cos. Inc., a major shareholder which owns roughly 12% of Prudential's equity, had agitated for a break-up of the group, believing that this offered better value to the AIA acquisition.

-By Jessica Hodgson; Dow Jones Newswires; +44207 8429373; jessica.hodgson@dowjones.com
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