Unstructured Finance

Clock ticks as AIG ponders AIA’s prospects

American International Group CEO Robert Benmosche asked the insurer’s board for time to explore options besides a public offering for its Asian life unit after a $35.5 billion deal to sell it to Prudential fell apart, a source familiar with the matter tells Paritosh Bansal.

Benmosche wanted to explore other options for American International Assurance, including selling parts of the business, after the directors on Monday voted down a sale to Prudential on revised terms, the source said. The British insurer had asked AIG to cut the price to $30.4 billion.

Putting aside for the moment what AIA may actually be worth, AIG’s board and even Uncle Sam can possibly be forgiven for not wanting to appear too desperate to sell. They certainly would have had a harder time setting prices for other assets if Pru was able to knock a sixth off the price just for asking.

AIG won’t haggle?!

With an outstanding IOU to Uncle Sam of more than $50 billion, AIG hardly seems to be in a position to turn up its nose at a lower bid for AIA from Britain’s Prudential. The message was pretty clear to Pru’s CEO Tidjane Thiam that his shareholders were in little mood to approve a $21 billion rights issue to fund a $35 billion purchase of AIG’s Asian assets. So he came back with a $30 billion offer. No surprises there. He’d be mad not to haggle, particularly given it looks like Pru is the only buyer out there.

Suggestions that AIG would opt for an IPO of the Asian business shouldn’t have been much of a threat to Pru’s bid. Expectations were that AIG would get around half what Pru was offering – after haggling – if it went to market, and that assumed a market with a whole lot more appetite for new issues than the one AIG is now looking at.

So what gives? Does AIG have some mystery buyer waiting in the wings willing to hit its magic price tag? Or has AIG CEO Robert Benmosche been given some secret blessing by the U.S. Treasury to slow down the asset sales and try to rebuild the business? That’s almost harder to believe than the white knight suggestion. This is an election year, and politicians will smell blood if it starts to look like AIG is dragging its heels in paying its bills.

Pru gets an earful over AIA deal

RiskMetrics has weighed in against Pru buying AIG’s AIA Asian assets, saying $35.5 billion is too much. The risk advisory firm joins a chorus of analysts chirping away from Singapore to London about problems with a deal that would pay off a huge chunk of AIG’s debt to Uncle Sam while transforming Pru into an Asian powerhouse.

Prudential holds a shareholders vote on June 7 to clear a $21 billion rights offer to fund the acquisition. One big issue is the price tag, which has drawn scrutiny given the fact that AIG has limited leverage to demand a big premium since it is selling the assets under duress. Pru’s ability to hit its projected revenue “synergies” from the deal are a big concern too.

CLSA Asia Pacific Markets, a broker not involved with deal, said in a report last week that a plan keeping both AIA and Pru brands intact and competing with each other will negate such gains. “It is already a challenge to retain agents, let alone target a dramatic increase in sales,” CLSA said.

Pru looks to appease shareholders

IAAPrudential’s strategy to appease shareholders: It will spit out what it can’t chew as it swallows a business bigger than itself.

The UK’s largest insurer is expected to outline divestments of some Asian assets in its upcoming rights offering prospectus to allay concerns about its planned $35.5 billion acquisition of AIA, AIG’s Asian life insurance unit.

Shareholders have become fretful about Prudential’s ability to pull off the mega transaction. It hit a regulatory snag last week and delayed the release of the prospectus for the $21 billion rights issue to part fund the deal.

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