Prudential Plc Said in Talks to Buy AIG Unit for $30 Billion

Prudential Plc Said in Talks to Buy AIG Unit for $30 Billion


Feb. 28 (Bloomberg) -- Prudential Plc, the U.K.’s largest insurer, is in negotiations to buy American International Group Inc.’s Hong Kong-based life unit for more than $30 billion, according to a person familiar with the situation.

Prudential would not be forced to sell any of its existing businesses to fund a purchase of American International Assurance Co., said the person, who declined to be identified because the talks are private. Chief Executive Tidjane Thiam has spoken with AIG’s board in recent days, the person said.

Thiam wants to raise the proportion of sales the company gets from Asia to 80 percent by 2015 from 50 percent now, he said in a Feb. 17 interview. Prudential operates in 13 Asian nations and is seeking to offset slower growth in the U.K. market. A sale of AIA would be a change of course for AIG, which has been planning an initial public offering for the unit to help repay its $182.3 billion bailout by the U.S. government

“If they buy AIA, Prudential will become an absolute dominant force in those big, big markets,” said Eamonn Flanagan, a Liverpool-based analyst at Shore Capital Group Plc who has a “buy” rating on the stock. “The strategic sense is terrific.”

London-based Prudential has a market value of 15.3 billion pounds ($23.3 billion). The stock has more than doubled in the past year. The shares rose 2.3 percent to 602.5 pence in London trading on Feb. 26.

Fully Underwritten

A 15 billion-pound share sale to fund the purchase would be fully underwritten by a group of banks led by Credit Suisse Group AG, HSBC Holdings Plc and JPMorgan Chase & Co., Sky News reporter Mark Kleinman wrote on his blog today. Sky News first reported on the negotiations yesterday.

Credit Suisse, HSBC, JPMorgan and Lazard Ltd. are advising Prudential on the acquisition, Sky said.

Prudential would pay mainly in cash with a small amount of stock, though the terms of the deal are still being worked out, the Wall Street Journal said today, citing one person familiar with the transaction.

Prudential spokesman Ed Brewster declined to comment as did AIG spokesman Mark Herr. Credit Suisse, Lazard and JP Morgan also declined to comment. A spokesman for HSBC didn’t respond to an e-mail seeking comment, and a spokeswoman for AIA in Hong Kong didn’t respond to a voicemail left on her mobile phone outside regular office hours.

Prudential’s offer may tempt other insurers to bid for the AIG unit, Flanagan said, especially if AIG were prepared to lower its asking price. Prudential may be best placed to make a higher offer because of cost savings it could make, he said.

AIA IPO

“In the various territories in the Far East and Asia, AIG and the Pru have been number one and two,” he said. “They can justify a higher price through synergy gains.”

Earlier this month, AIG, which is selling assets to repay the U.S. government, hired about seven additional banks to help manage an initial public offering for AIA in Hong Kong, according to five people familiar with the decision.

Credit Suisse, CCB International, Goldman Sachs Group Inc. and UBS AG were among banks due to work with the original sale managers, Deutsche Bank AG and Morgan Stanley, said the people, who declined to be identified before a public announcement.

One year ago, the New York-based AIG, once the world’s largest insurer, was forced to shelve talks with potential corporate buyers of AIA because bids were too low, people familiar with the matter said at the time.

AIA had attracted interest from Manulife Financial Corp., Prudential and Temasek Holdings Pte, with all seeking to buy a stake, according to people familiar with the matter, speaking in May 2009. The unit had an embedded value of about $20 billion, a person familiar with the valuation said one year ago. Embedded value estimates a company’s net worth excluding new business.

If AIG proceeds with an IPO of AIA, it hopes to value the unit at $30 billion to $40 billion and get proceeds of about $15 billion, the WSJ reported today.

--With assistance from Hugh Son in New York and Kevin Crowley in London. Editors: Mike Harrison, Dick Schumacher.

source: businessweek.com