HONG KONG/LONDON (Reuters) - Prudential said it was trying to negotiate a cut in the $35.5 billion (24.3 billion pounds) it has agreed to pay for AIG’s Asian unit, AIA, 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 PRU.L said in a statement on Friday.
“These discussions may or may not lead to a change in the terms of the combination of AIA Group Limited and Prudential.”
Reuters earlier reported that Prudential was trying to cut the cost of the AIA takeover amid rising pressure from investors.
One source close to the deal told Reuters Prudential is pushing to reduce the price by $5 billion, a reduction of 15 percent.
“A revised proposal has been submitted to AIG, with a price tag of about $30 billion,” the source said.
Prudential’s London-listed shares were down 0.6 percent at 544 pence at 0747 GMT.
Prudential plans to part-finance the deal, the insurance sector’s biggest ever acquisition, with a $21 billion rights issue, but investor support for the fundraising is in doubt after some said AIA’s purchase price is too high.
In order to proceed, the deal, which would allow bailed-out AIG AIG.N to repay a big chunk of its debt to the U.S. taxpayer, needs to get 75 percent approval at a shareholder vote scheduled for June 7.
Any change to the price should reflect integration risks that Prudential will face, said Patricia Cheng, an analyst with CLSA.
“Prudential’s target, to triple AIA’s new business value by 2013, looks too aggressive”, she said.
“The price can’t be based on this target. But the price can’t get much lower either. Investors have an idea of these integration risks and I don’t think they are likely to agree to the deal.”
“Technically, the price can be negotiated up or down, but the question is whether there is the will to do so,” said one person with knowledge of the matter, asking not to be identified as the discussions were confidential.
“A reduction in the price of $5 billion would be a significant 14 percent reduction in the price agreed, however it may be enough to appease shareholders and get the deal done,” Oriel Securities analyst Marcus Barnard wrote in a note.
On Thursday Prudential’s London listed shares rose almost 7 percent on market talk it may call off the deal or fail to get the required 75 percent shareholder approval to get it done.
Ahead of the June 7 investor vote, an influential voting adviser, RiskMetrics, has told investors to vote against the deal..
AIG’s majority owner, the U.S. Treasury, has maintained that it has the option to revive the planned initial public offering of AIA it was pursuing before Prudential’s bid.
AIG had quashed that plan in favour of the Prudential deal, but there were serious misgivings about the takeover among AIA staff and CEO Mark Wilson has threatened to quit if the deal goes ahead, the FT reported earlier this week.
Additional reporting by Jimmy Tsim and Vikram Subhedar and Myles Neligan; Writing by Doug Young, Editing by Lincoln Feast and Mike Nesbit
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