Prudential to fund AIG deal with biggest UK rights issue

Prudential is to launch the biggest rights issue in UK corporate history after tying up a US$35.5 billion ($51 billion) deal to buy AIG's Asian assets in the most significant bet yet on the region by a British company.

The deal will see the insurer paying US$25 billion in cash and US$10.5 billion in new Prudential shares, with the cash being raised through a £13.1 billion ($28 billion) shares issue.

It has been fully underwritten by Credit Suisse, JP Morgan Cazenove and HSBC, who are expected to carve up as much as US$1 billion in fees. There will also be a substantial debt issue.

Other bankers outside the favoured three were yesterday desperately scrambling to get a piece of the action after a bleak February in which the value of deals in Europe halved despite the takeover of Kraft by Cadbury.

AIG, which is largely owned by the US Government after the stricken company was bailed out during the financial crisis, will hold about 11 per cent of Prudential after completion and chief executive Tidjane Thiam said it would be a long-term holder. Prudential is paying AIG around 1.69 times the value of the businesses it is buying.

Cost savings of US$340 million a year are expected to be generated from the deal and Prudential will gain more than 20 million customers and 23,500 employees.

After completion, it will be the top player in Hong Kong, Singapore, Malaysia, Thailand, Indonesia, the Philippines and Vietnam, and the top foreign player in India and China.

Prudential will also seek a secondary listing of its shares in Hong Kong but Thiam insisted the company was committed to Britain.

The deal was announced just days before the nine-year anniversary of the collapse of the company's last "transformational deal", ironically when AIG outbid the company for the US life insurer American General.

Prudential also hurried out its full-year results a day early on the back of the deal. Profits recovered to £677 million after last year's £391 million loss. Sales also grew 11 per cent to £2.9 billion in a year when most rivals saw falls.

Accenture, the consultant, said more such transactions were expected over the next couple of years as insurers seek growth which is unavailable in developed economies.

- INDEPENDENT