Profit Time

Prudential scraps deal to buy AIA

Prudential, the UK insurer has cancelled the deal to buy AIA, AIG’s Asian life unit in the face of harsh criticism from the shareholders over the price the company had conceded to pay. The company has reportedly failed to negotiate a lower price leading to the stiff opposition from the shareholders.

In March, Prudential had agreed to the deal of buying AIA for $35.5billion (£24.6billion), but had asked the company to cut down the price to $30 billion, following an outcry from the shareholders. But the US giant American International Group had refused the offer thereby, leading to the failure of a last-minute plan of Prudential by means of which it will simultaneously sign the deal and placate the shareholders as well.

Prudential Chairman Harvey McGrath has declared in an official statement that owing to the failure of reaching an agreement with the shareholders one the price offered and AIG to reduce the price, Prudential has withdrawn from the transaction.

The company’s shares were 3.3% lower in early morning London trading. Later it had closed 2.5% lower at 561 pence. But on Tuesday, final reports that the deal was being scrapped had triggered off a share price rise among shareholders who had apparently heaved a sigh of relief.

However, the failure of the takeover effort has raised questions and speculations about its strategy. Both Chief Executive Tidjane Thiam and McGrath who had almost personally spearheaded the plan that would have made Prudential Asia’s largest foreign-owned insurer will spend much of their Wednesday in a meeting with the insurer’s top investor, in an attempt to placate them and subdue a talk of breaking up the top insurer of Britain-an issue which has again raised its head.

The management has found itself in a difficult situation indeed and has to provide a lot of explanations about the hefty charges incurred as the cost of the failed deal as well.

Tags: Insurance

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