Prudential PLC (PRU.LN) CEO Tidjane Thiam's goal of transforming the U.K. insurer through a large Asian acquisition hangs in the balance this week. And, with shareholder concerns about the deal mounting, Thiam's own position at the head of the company is looking increasingly uncertain.

For Thiam, the most pressing challenge is to assuage the concerns of the U.K. financial regulator, the Financial Services Authority, on the capital position of Prudential if the planned acquisition of American International Group Inc.'s (AIG) Asian assets in a $35.5 billion deal goes through. Even if he achieves this, there's no guarantee that shareholders, already concerned about the mammoth $20 billion-plus rights issue being used to finance the deal, will swing behind his vision.

"If the core shareholders don't believe in the AIA transaction, it's difficult to see how [Thiam] could stay on," said James Chappell, an insurance analyst with Olivetree Securities in London.

The FSA's concerns over the deal--centered on the implications for the capital position of the enlarged group and the potential problems of repatriating capital from Asian markets to Prudential's U.K. headquarters--are the latest stumbling block in a long series of hitches that have eroded the confidence of some shareholders toward what was already seen as a risky deal.

Prudential worked hard to court its large shareholders when the deal was initially announced, people familiar with the matter say. And many of these shareholders are still committed to the logic of the deal. But a series of perceived misstep's by management are beginning to try the patience of others.

The size of the rights issue is considered risky in itself, people familiar with the matter say. After it was announced March 1, Prudential's shares plunged by almost 20%, though they have since recovered. According to unconfirmed U.K. news reports, Prudential's largest shareholder Capital Group Cos. Inc., believes there is better value to be had in a break-up of Prudential and a divestment of its U.K. business. Capital has declined to comment.

None of the Prudential's top 20 shareholders has publicly broken rank on the deal. But existing concern about the size and risk of the rights issue has been amplified by the FSA's questions. With Europe's largest nations battling to stabilize market jitters over Greece, the U.K. grappling with the uncertainty created by a hung Parliament and the timetable for the rights issue already slipping back, these concerns could yet destabilize the deal even if the FSA gives the deal its seal of approval.

Last week, Neptune Investment Management, a U.K.-based fund manager with a position in Prudential worth around GBP50 million, said it was seeking the backing of other shareholders for a vote of no confidence in Thiam.

Standard Life Investments, a unit of Standard Life PLC (SL.LN), a major U.K. institutional fund manager that holds just under 1% of the Prudential's equity, told The BBC's Radio 4 on Monday that it was concerned about the cost of the deal.

"When they announced the deal, it seemed quite an expensive way to proceed ... and it does look as if that price has just gone up," said Euan Stirling, investment director for Standard Life.

Another among Prudential's 20 largest shareholders told Dow Jones on Monday that it "has had issues with this deal from day one, and things haven't improved." Although a person familiar with this firm's intentions stopped short of calling for Thiam to stand down, the person said that some shareholders were "extremely disgruntled" and without clarity on the regulatory position it would be difficult to back the deal.

News reports over the weekend suggested that Prudential was close to agreeing to a deal with the FSA that would see it ring-fence an additional GBP1 billion of capital to deal with the risk to its capital reserves created by the transaction. Neither Prudential nor the FSA commented Monday.

Thiam, who took charge of Prudential in October 2009, said when he took over that he didn't plan to change the group strategy, but would focus on "execution and delivery."

Prior to taking over at Prudential, Thiam had worked as a government minister in his native Ivory Coast, in consultancy roles at McKinsey & Co. and more recently at U.K. insurer Aviva PLC (AV.LN).

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

(Vladimir Guevarra contributed to this article.)
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