Prudential's AIA foray leaves the insurer with a £450m bill

The Pru's bid to buy AIA – the Asian arm of bailed-out United States insurance giant AIG – finally collapsed after its shareholders baulked at the hefty price and chief executive Tidjane Thiam failed to renegotiate the deal.

Mr Thiam – who took over the top job last October – will now face pressure to quit with his plans for a ground-breaking acquisition in ruins.

The withdrawal leaves the insurer with a 152.6m break fee as well as advisory costs and fees, 450m in total, connected with the record 14.5bn shareholder cash-call it planned to fund the deal.

The huge cost of the deal's failure comes close to the 481m the Prudential paid out in dividends to investors last year.

Major institutional investors were also unhappy at the prospect of stumping up the bulk of the $35.5bn (24.2bn) price for AIA in turbulent markets and pushed Mr Thiam to gain a cheaper deal.

Prudential proposed a cut in the value of the deal to $30.4bn (20.7bn) but this was rejected by AIG, which is 80 per cent owned by the US Treasury.

The opposition of the Pru's own investors left it facing the humiliating prospect of the move being voted down by shareholders at a meeting next week unless it walked away.

The acquisition – first announced in March – was also held up by concerns from the Financial Services Authority (FSA) over the capital position of the enlarged group.

The disarray sparked by the collapse of the AIA deal could even leave the insurer vulnerable to a takeover and break-up.

Chairman Harvey McGrath said the company had "listened carefully to shareholders" while Mr Thiam said he still viewed Asia as "offering excellent growth opportunities".

Mr Thiam added: "We agreed with shareholders that a renegotiation of the terms was necessary given market movements but it has not proved possible to reach agreement."

Prudential's failed bid for AIA is likely to spark a major upheaval and boardroom bloodletting at the 162-year-old insurance firm.

The debacle could cost chief executive Tidjane Thiam his job and trigger an eventual break-up of one of the UK's most trusted names, which has around 25 million customers.

Following the collapse of the deal, analysts said it may sell off its Asian business to rescue something from the wreckage.

Turbulent markets make an immediate break-up or takeover less likely but the insurer may look at how to squeeze the most value out of its own fast-growing Asian arm, Panmure Gordon analyst Barrie Cornes said.

A listing of Pru's Asian operation, PCA, could be "the one positive to come out of this foray", he said.

Whether Mr Thiam will be around to oversee it, however, remains to be seen with concerns over the way the deal was handled from the beginning potentially leading to changes at the top.

Neptune Investment Management's Robin Geffen, who has led opposition to the AIA move, said the failure of the deal was "ultimately a triumph of common sense and the investment management community standing up to fulfil their responsibilities to their investors". He has backed Michael McLintock – the head of the Pru's fund management arm M&G – to take over as chief executive.

In a thinly-disguised attack on the current leadership, Mr Geffen called Mr McLintock "a very able and good manager who always listens carefully to those around him".

Chairman Mr McGrath meanwhile is also likely to face uncomfortable scrutiny over the debacle and could come under pressure to resign.

Mr Cornes said the company now needed to get back to basics and tackle the difficult task of wooing back its disgruntled investors.

"We think that Pru will need to clarify its strategy going forward – Plan A – and re-engage with its shareholder base," he added.

In a silver lining for the group, the revised offer made for AIA by Prudential – even though it was rejected by the US parent – values the insurer's own presence in the region at around 12.6bn.

The current market price of Prudential as a whole is around 14.6bn – which puts a value of 2bn on its combined US and UK arms, Mr Cornes says.

He added: "UK investors will now be aware of the valuation of their Asian operation and how they can realise that."

The low value placed on the cash-generative UK business in particular – the proceeds of which have been used to pay for the Asian group – leaves plenty of room for improvement in the current shares and a break-up possible in the medium to long-term if the stock fails to perform.

Mr Cornes said the AIA venture was the right strategy but there had been a "whole raft of banana skins".