People walk out of AIA tower Monday in Hong Kong. Prudential would become the largest non-Chinese insurer in sealing the AIA deal. AFP
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An acquisition of this size would probably need equity financing."--------------------------------------------------------------------------------
via CAAI News Media
Tuesday, 02 March 2010 15:02 Zachary R Mider and Kevin Crowley
Deal for AIG’s Asia unit – at more than $35 billion – would be biggest in industry
HONG KONG
AMERICAN International Group Inc (AIG) is in talks to sell a Hong Kong life insurance division to Prudential Plc for more than US$35 billion, marking AIG’s largest asset sale since US taxpayers bailed out the company in 2008, people briefed on the matter said.
AIG and Prudential aim to reach an agreement to sell American International Assurance Co in the coming days, although the talks could always collapse, the people said, declining to be identified because the matter is private. Prudential is offering about $25 billion of cash, which it would raise by issuing equity, and the remainder in stock, one of the people said. The price is about 50 percent more than Prudential’s own market capitalisation.
The sale, the biggest in the insurance industry excluding government bailouts, would be a change of course for AIG, which had planned an initial public offering for the unit to help repay its $182.3 billion rescue. Though AIG executives believe an IPO would have a value similar to Prudential’s offer, the sale offers more cash up front, one of the people said.
“Strategically it’s probably the right move” for Prudential, said Justin Urquhart Stewart, who oversees about $3.3 billion as director of 7 Investment Management in London, including Prudential shares. “It puts them into a different league."
Prudential Chief Executive Officer Tidjane Thiam was in New York last week meeting with AIG executives to discuss the bid, one of the people said. Thiam said on February 17 that he wants to raise the proportion of sales from Asia to 80 percent by 2015 from 50 percent now. Prudential operates in 13 Asian nations and is seeking to offset slower growth in the UK market.
London-based Prudential has a market value of £15.3 billion ($23.3 billion). The stock has more than doubled in the past year. The shares rose 2.3 percent to £6.025 in London trading on Friday. The company has an A+ credit rating with a negative outlook at Standard & Poor’s and an A2 rating with a negative outlook at Moody’s Investors Service.
“Prudential has a very strong capital position, but an acquisition of this size would probably need equity financing to support it,” said Antonello Aquino, a senior credit analyst at Moody’s, who follows European insurers.
Prudential is working with Credit Suisse Group AG, HSBC Holdings Plc and JPMorgan Chase & Co on a share sale to fund the purchase, one of the people said. Sky News first reported the negotiations on Thursday. Lazard Ltd is also advising Prudential, the person said.
The UK insurer plans a $20 billion rights offering to finance the purchase, Reuters reported. Lloyds Banking Group Plc completed the United Kingdom’s biggest rights offering in December, raising £13.5 billion.
AIG said last May that it would pursue an IPO of AIA after an auction of the business failed to turn up bids that matched what AIG executives thought the company was worth. That included a bid from Prudential that valued AIA at about $15 billion, one of the people said.
Prudential spokesman Ed Brewster declined to comment, as did AIG spokesman Mark Herr.
The sum raised in the sale would exceed the total of more than 20 other asset sales announced by AIG, which has struck deals to raise more than $12 billion by selling units. BLOOMBERG
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