Bloomberg in LondonMar 02, 2010
Prudential agrees to buy AIA for US$35.5b
Sector's biggest sale as UK firm looks to Asia
Britain's biggest insurer has agreed to buy AIA - the Asian life insurance unit of American International Group - for US$35.5 billion in cash and stock, to expand in China and India.
Prudential said yesterday it would pay US$25 billion in cash and US$10.5 billion in stock and other securities for AIA. Credit Suisse, JP Morgan Cazenove and HSBC Holdings agreed to underwrite in full a US$20 billion rights offer to finance the acquisition. The insurer will also sell about US$5 billion of senior debt.
Prudential chief executive Tidjane Thiam is trying to boost sales in Asia as growth in Britain declines. By acquiring AIA, Thiam gets a business with more than 90 years in Asia, more than 20 million customers and more than US$60 billion of assets in 13 markets in the region. The purchase price is about 50 per cent more than Prudential's market value.
"If you look at the price, it shows the company is very bullish on the Asia market," Luo Yi, a Shenzhen-based analyst at China Merchants Securities, said. "The Chinese market has vast potential."
The sale, the biggest in the insurance industry excluding government bailouts, would be AIG's largest disposal since it received a US government bailout in 2008. AIG had planned an initial public offering for the Hong Kong-based unit to help repay its US$182.3 billion rescue. Though AIG executives believe an IPO would have a value similar to Prudential's bid, the sale offers more up front, an informed source said.
Prudential's offer may tempt rivals to bid for AIA, especially if AIG were prepared to lower its asking price, Eamonn Flanagan, a Liverpool-based analyst at Shore Capital Group, said.
The offer equals 1.5 to 1.7 times the embedded value of AIA last year. Embedded value estimates a company's net worth excluding new business.
The rights offering would be about equal to December's £13.5 billion (HK$159.5 billion) sale of Lloyds Banking Group - Britain's biggest.
"If you've got backing from a few banks and a few major shareholders, there will be a way to make this deal happen," said Marcus Barnard, a London-based analyst at Oriel Securities, with a "sell" rating on the stock. "The question is the cost and the risk involved."
The insurer may be forced to sell assets in China and India to comply with foreign-ownership regulations.
Thiam met AIG executives in New York last week to discuss the bid, one of the people said.
Thiam said last month that he wanted to raise the proportion of sales from Asia to 80 per cent by 2015 from 50 per cent now.
"Strategically it's probably the right move" for Prudential, said Justin Urquhart Stewart, who oversees about US$3.3 billion as director of 7 Investment Management in London, including Prudential shares. "It puts them into a different league."
An acquisition of AIA, founded in Shanghai in 1919, would give Prudential a business with 20,000 employees and 250,000 agents in markets spanning China to Australia.
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