British insurer Prudential today confirmed it was trying to negotiate a cut in the $35.5 billion it has agreed to pay for AIG's Asian unit, amid fears its shareholders might block the deal as too expensive.
"We confirm that discussions regarding the current status of the transaction have taken place between Prudential and AIG and are continuing," Prudential said in a statement this morning.
"These discussions may or may not lead to a change in the terms of the combination of AIA Group Limited and Prudential.
Prudential is planning to finance the deal, the insurance sector's biggest ever acquisition, with a $21 billion rights issue, but some investors have said AIA's price tag is too high.
In order to proceed, the deal, which would allow bailed-out AIG to repay a big chunk of its debt to the US taxpayer, needs to get 75 per cent approval at a shareholder vote scheduled for June 7th.
The company hopes to get the price tag for AIA down to as low as $30 billion, the Financial Times reported, citing people familiar with the situation.
Bernstein Research analyst Toby Langley said a $5 billion reduction in the price would make the deal earnings neutral to Prudential by 2013-14.
"A cut of $3.5 billion would see earnings dilution of 5 percent in 2013 with neutrality in 2015," he said in a note.
Prudential's London listed shares rose almost 7 per cent yesterday on market talk it may call off the deal or fail to get the required 75 per cent shareholder approval to get it done. Shares in Hong Kong were trading up 6.6 per cent at 6.49am today.
Prudential's bold and ambitious move to transform itself into the dominant Asian insurer will be put to shareholders vote on June 7th. Ahead of that, an influential voting adviser, RiskMetrics, has told investors to vote against the deal..
AIG's majority owner, the US Treasury, has maintained that a viable option is to return to an initial public offering plan is was pursuing before Prudential's bid.
AIG had quashed that plan in favour of the Prudential deal, but there was serious misgivings about the deal among AIA staff and CEO Mark Wilson had threatened to quit if the deal had progressed, it was reported earlier this week.
Reuters