AIG Negotiates to Salvage AIA Deal as Thiam Seeks to Cut Price

AIG Negotiates to Salvage AIA Deal
AIG was forced to reopen negotiations with Prudential Plc when some of Prudential's biggest shareholders said they may reject the transaction at a June 7 meeting. Photographer: Timothy O'Rourke/Bloomberg

American International Group Inc., the bailed-out insurer, remains in negotiations to salvage the sale of its main Asia unit after Prudential Plc requested a lower price to win shareholders’ approval.

Prudential asked that the $35.5 billion price for AIA Group Ltd. be cut to about $29 billion to $30 billion, and New York- based AIG is seeking at least $32 billion, said a person with knowledge of the talks who declined to be identified because they are private. The Sunday Times reported that Prudential won backing for the deal from investors provided it can cut the price by more than 10 percent.

AIG was forced to reopen negotiations when some of London- based Prudential’s biggest shareholders said they may reject the transaction at a June 7 meeting. The U.S. Treasury Department, which helped rescue AIG in 2008, said it hadn’t considered alternatives to the original terms as of late May 28, and AIG signaled it has other options for AIA, according to a person briefed on the stance of management.

“They need to get the price down, otherwise there’s no deal,” Julian Chillingworth, who helps manage $21 billion including Prudential stock at Rathbone Brothers Plc in London, said in a telephone interview yesterday. “We’re looking for a meaningful reduction. The market’s roughly 10 percent lower than when they started the deal, so you need a reflection of that plus a bit more.”

‘Valuable Business’

Andrew Williams, a spokesman for Treasury, said May 28 that the department hasn’t weighed alternatives to the $35.5 billion contract announced in March and that “AIA is a valuable business for which there is significant interest.” AIG’s board met that day and hadn’t considered a reduced offer, according to a person with knowledge of the meeting. The board will ultimately decide if it will accept a new deal, the person said.

Joe Norton, a spokesman for AIG, didn’t return a call seeking comment. Prudential’s Edward Brewster declined to comment.

Prudential Chief Executive Officer Tidjane Thiam, 47, needs 75 percent of investors to support a rights offer at the insurer’s annual general meeting. Prudential investors including BlackRock Inc. and Fidelity Investments said the takeover was too expensive, a person with knowledge of the matter said last week.

Rescue in 2008

Prudential’s biggest investor, Los Angeles-based Capital Group Cos., is expected to vote in favor of the deal if the price for AIA Group Ltd. drops to between $31 billion and $32 billion, the Sunday Times reported, without saying where it got the information.

The U.S. government, which took a stake of almost 80 percent in AIG after the 2008 rescue, is willing to allow the insurer to lower the price, people familiar with the matter have said.

The $35.5 billion deal announced in March included about $25 billion in cash and the rest in securities linked to Prudential shares. Prudential’s latest offer of about $30 billion mostly reduced the amount of securities AIG would receive, said a person with knowledge of the discussions.

Under the original terms of the sale, the 162-year-old British insurer had to pull off a $21 billion rights offer, the biggest for an acquisition in history, at a time when Europe’s sovereign debt crisis was sidelining corporate fundraisings worldwide.

‘A Very Aggressive Price’

At least 19 companies have postponed or withdrawn $5 billion in U.S. debt sales since April 13, data compiled by Bloomberg show. Investment banking fees from acquisition advice, share and bond sales in Western Europe dropped 17 percent in the first four months of 2010 compared with the previous year, New York-based research firm Freeman & Co. said.

AIG had negotiated “a very aggressive price” for AIA, CEO Robert Benmosche told the Congressional Oversight Panel on May 26 during a hearing into the company’s bailout. The unit may be valued at slightly less than $30 billion in a public offering, according to an analysis done before the March announcement by Angelo Graci, managing director at Chapdelaine Credit Partners

Selling AIA, which operates in 13 markets from China to Australia and has 23 million customers, would be AIG’s biggest step to repay U.S. taxpayers for loans within its $182.3 billion government bailout. If the Prudential deal fails, it could delay that effort. The insurer planned to use proceeds from the sale, and a separate deal to sell American Life Insurance Co. to MetLife Inc., to repay a Federal Reserve credit line.

Public Offering

The insurer could hold a public offering for AIA should the sale to Prudential fail, Jim Millstein, the Treasury’s chief restructuring officer, said May 26. AIG had previously planned on a public offering for AIA until Benmosche, 66, decided to accept Prudential’s offer.

“The deal’s not dead until it’s dead,” Eamonn Flanagan, a Liverpool, England-based analyst at Shore Capital Group Plc, said in an interview. “Treasury could just be playing hardball here. There will be a lot of posturing from both sides.” He recommends buying Prudential shares.

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