Prudential terminates AIG deal, scraps $21 billion rights issue

Prudential Plc, Britain's largest insurer today terminated an agreement to buy the Asian life-insurance arm of the American International Group, Inc. (AIG) and scrapped plans for its proposed $21 billion rights issue that was supposed to fund the $35.5 billion acquisition.

AIG, the stricken insurance and financial services firm, had signed a definitive agreement in early March 2010 with Prudential for the sale of its Asian assets, the AIA Group Limited (AIA) for a revised low bid of $30.375 billion. (See: AIG sells Asian assets to Prudential for $35.5 billion)

Facing shareholders revolt on the high price of the deal, Prudential sent a revised offer over the weekend and dropped the deal price by $5.125 billion to $30.375 billion.

But the New York City-based AIG, which received a $132-billion bailout from the US government during the height of the financial crisis, refused to consider any downward revisions, despite several rounds of negotiations with Prudential. (See: Prudential-AIA deal may collapse as AIG refuse to lower $35.5 billion bid) 

In a statement put out today, the London-based Prudential said that it was in talks with AIG for ending the deal and would be willing to pay $653 million in termination fees.

Prudential will go ahead with its 7 June Annual General Meeting but said that it will not proceed with the planned $21-billion rights issue to fund the deal.

Tidjane Thiam, the CEO of Prudential, whose job is on the line for the failed deal, said, ''We entered into this potential transaction from a position of strength in Asia and we view the region as offering excellent growth opportunities for Prudential. We agreed with shareholders that a renegotiation of the terms was necessary given market movements but it has not proved possible to reach agreement.''