Big Setback for A.I.G. in Collapse of Deal Selling Asia Branch AIA
Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.
The American International Group scuttled the deal to sell its huge Asian life insurance arm, AIA, to Prudential of Britain for about $35 billion,
in a major setback to repaying the government for its 2008 rescue.
The American International Group scuttled the deal to sell its huge Asian life insurance arm, AIA, to Prudential of Britain for about $35 billion,
in a major setback to repaying the government for its 2008 rescue.
Now a deal with the UK’s Prudential – not related to the company of the same name in the US – that it was counting on to help give it some much needed liquidity
appears to have fallen through, without much hope of being resuscitated, according to this article in the New York Times.
Trying to appease its angry shareholders, Prudential had tried to keep the faltering transaction alive by lowering its price for the unit to $30.37 billion at the last minute.
But A.I.G. rejected that proposal, issuing a terse statement on Tuesday that it would “not consider revisions” of the original terms.
On Wednesday, Prudential withdrew its bid and said it would pay a breakup fee of 152.6 million pounds, or $223.7 million to A.I.G.
It was a marked change from the jubilation two months ago when A.I.G. heralded the sale of its prized Asian subsidiary, known as American International Assurance, or A.I.A., as a quick, breakthrough solution to raise money.
The company has wrestled with how to disentangle its network of subsidiaries and sell them for the best returns,
in part because markets are inhospitable and potential buyers include rivals looking for a fire sale.
Even in good times few companies would have the ability or appetite to buy a company as big and diverse as A.I.A.
With Prudential no longer in the picture, A.I.G. has no obvious suitor and may have to revert to its previous Plan B,
selling the Asian subsidiary in an initial public offering, probably on the Hong Kong stock exchange.
A.I.G.’s chief executive, Robert H. Benmosche, said in a letter to his staff on Tuesday that the company “will have several options to consider regarding A.I.A. — more than we did in March.”
He did not reveal them, but said that because of progress in other areas, “we have more flexibility regarding timing” than just a few months ago.
In 2009, A.I.G. was just weeks away from offering its subsidiary’s stock on the Hong Kong stock exchange when Mr. Benmosche became chief executive,
and said he thought the company was selling its units too quickly, and for too little.
He commenced talks with Prudential, convincing skeptical A.I.G. directors that the sale would prove more beneficial than an initial public offering, which would take much longer.
When the offer from Prudential was announced in March, it looked impressive at $35.5 billion
because a number of analysts had said A.I.A. was probably worth no more than $20 billion, and probably less.
Earlier in 2009 a consultant to A.I.G. reported that the Asian life business might fetch as much as $50 billion in a public stock offering,
but the company said that number was not credible.
According to someone at a meeting of A.I.G.’s board, Mr. Benmosche threatened to resign if the board did not approve the sale to Prudential.
An A.I.G. spokesman, Mark Herr, said the company did not comment on rumors.
Since A.I.G. abandoned the initial public offering, the Hong Kong market for insurance stocks has softened.
International insurance regulators are also scrutinizing the capital of potential acquirers.
That means A.I.G. is less likely to get the price it initially expected from the public offering.
“The world’s different now. Insurance stocks are all trading below book value now,”
said Clifford Gallant, a property and casualty insurance researcher for Keefe, Bruyette & Woods.
“It’s certainly a setback from the taxpayers’ point of view.”
The Federal Reserve Bank of New York is entitled to the first $16 billion of proceeds from any sale.
Additional proceeds are to be used to pay back the United States Treasury, which is owed about $70 billion.
Shares of A.I.G. fell 3.19 percent, to $34.25, while Prudential’s American depositary receipts rose 5.89 percent, to $16.53.
The decision by A.I.G.’s board to move beyond Prudential, leaving little room for talks to resume,
came after weeks of negotiations as Prudential’s shareholders objected to the original $35.5 billion price.
Prudential, a British insurer unrelated to Prudential Financial of the United States, had told A.I.G. that its restive shareholder base would not support the deal unless the price was cut.
One of the big proxy advisory firms, RiskMetrics, urged investors last week to vote against the transaction.
But another, Glass, Lewis & Company, recommended later in the week that shareholders approve it.
Representatives for Prudential and A.I.G. declined to comment.
Like Mr. Benmosche, Tidjane Thiam, the chief executive of Prudential, is relatively new in his post,
and had billed the deal as one that would transform the British firm into a behemoth in the Asian insurance industry.
Stock analysts questioned whether the collapse of the deal would put Mr. Thiam’s job in jeopardy.
Relations between Mr. Benmosche of A.I.G. and the chief of A.I.A., Mark Wilson, have deteriorated, according to people close to the situation.
From the beginning, Mr. Wilson preferred a public stock offering to a sale to Prudential.
But almost as soon as it was announced, the Prudential deal was plagued by problems.
This month, the financial regulator of Britain, the Financial Services Authority, delayed Prudential’s long-awaited $21 billion rights issue,
intended to finance the purchase, to test the combined firm’s capital ratios.
