Prudential and AIG agree $35.5bn Asian deal

1st Mar 2010 07:01

Shares in Prudential slumped as the UK life insurer confirmed it has agreed a deal to buy troubled US life group AIG's Asian business for $35.5bn. The acquisition will be funded by a $20bn rights issue, the largest ever seen in the UK. The terms of the issue will be announced with the prospectus in April. Prudential will also issue $5bn of senior debt, while AIG will receive $5.5bn in new Pru shares plus $3bn of convertible shares and $2bn of preferred shares. AIG is 80% owned by the US government, which will mean the US taxpayer owning a stake in the UK's largest insurer. It had planned to float its Asian business in a few weeks time, but Pru chief executive Tidjane Thiam moved rapidly to seal the company's grip on its fastest growing market, though he added the enlarged Asian business would still seek a float in Hong Kong in the future to underline the region's importance.Taking on AIG's Asian arm would transform Prudential's growing operations in the region. It would become largest life group in the area with over 30m customers and profits of close to £3bn per year. One third of it profits and half its new business are already generated from Asia.Highlighting the region's importance, the Pru also released full year figures today with Asia clearly the driving force behind the company. Sales hit a record, with total APE sales of £2,896m, up 1% while retail sales were up 11% to £2,890m. The fourth quarter saw sales rise 25% over the third quarter with sales in Asia up 42%.IFRS operating profit was up 10% to £1,405m, while margins rose to 56% (2008: 42%. The dividend for the year rises by 5% to 19.85p."These results represent an outstanding performance against a backdrop of unprecedented economic uncertainty," Thiam said."This agreement (with AIG) provides Prudential with a one-off opportunity to transform the growth profile of the Group and offers long-term material benefits to our shareholders," he added.The deal will generate $340m in savings once the offices have been rationalised, but Thiam insisted the purchase was about growth not costs.In a press conference, he also insisted its UK arm was still a key part of the Pru's plans going forward despite repeated speculation it could be sold.Separately, Resolution, the UK life industry consolidator, put out a statement this morning that it is not in talks to buy the Pru's UK businesses.