Prudential's £25bn venture into Asia crumbling

UK insurance giant Prudential's £25bn bet on Asian expansion stood on the brink of a humiliating collapse yesterday.

The latest setback for the Pru came after United States insurer AIG refused to lower the price it is prepared to accept for its Asian arm AIA.

The UK's largest insurer had asked AIG to revise the terms after it became clear that its shareholders would not support the acquisition of AIA at the current price of $35.5bn (24.5 bn).

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It proposed a cut in the value of the deal to $30.4bn (20.9bn) but this was rejected by AIG, which is 80 per cent owned by the US Treasury.

Yesterday the Pru said it was considering its position but analysts believe the deal is dead after AIG made it clear that it would not consider any further revisions to the original terms.

The Pru share price improved during the day as investors expressed their relief that the potentially costly takeover had been avoided and closed at 575.5p, a rise of 33.25p.

The deal would have given Pru around 30 million customers in Asia and seen the Asian operation become by far the group's biggest division –contributing around 60 per cent of new-business profit.

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The apparent failure of the deal extends the UK's dismal reputation for takeovers in overseas markets.

Other ill-fated deals have included Royal Bank of Scotland's

acquisition of ABN Amro, HSBC's purchase of sub-prime lender Household in the United States and Marks & Spencer's deal for Brooks Brothers, which the retailer sold in 2001 for a third of the takeover price.

The Prudential's current proposal needs the support of 75 per cent of its shareholders for the deal to go through.

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The vote is due to take place on Monday but Panmure Gordon analyst Barrie Cornes said he expected the Pru to walk away from the takeover.

He added: "Pru says that it is now considering its position but, unless AIG have a change of mind, we believe that the deal will collapse as Pru will be unable to garner sufficient support to proceed with the acquisition."

The failure of the Pru to secure AIA will raise questions over the future of Tidjane Thiam, who became chief executive in October but has suffered a series of setbacks since announcing the business-changing proposal in March.

The Pru was forced to delay a 14bn investor cash-call being used to finance the takeover after the Financial Services Authority raised concerns about the capital strength of the enlarged company.

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The rights issue was eventually launched in mid-May, but the hiccup with the FSA compounded worries over the acquisition.

As well as the price tag, investors have criticised the length of time it will take to secure acceptable returns from the investment in Asia.

Capital Group, Prudential's biggest shareholder with a 13 per cent stake, had been expected to back the deal if the price were to drop to below $32bn.

And Neptune Investment Management said the enlarged company still lacked the strength to compete with local giants like China Life and Ping-An.

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