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AIG and Prudential agree on breakup fee clause

Posted on Mar 08, 2010 by Sergio Ulloa ()

As American Insurance Group's (AIG) sale of American International Assurance (AIA)to Prudential PLC moves forward, Prudential has agreed to pay American Insurance Group a fee of GB£153 million (US$231 million) should the deal for Asian life insurance unit AIA fall through. American Insurance Group announced the deal on Monday, March 1st for approximately US$35.5 billion, divided up between US$25 billion in cash, US$8.5 billion in equity and equity-linked securities at nominal value, and US$2 billion in preferred stock. AIG expects the deal to be closed by the end of 2010. Based on late Friday filings with the U.S. Securities and Exchange Commission (SEC), Prudential has not only agreed to the US$231 million breakup fee, but also payments 0.4% of the outstanding cash value of the deal, possibly over US$100 million per month, should it not be wrapped up by September 1st, 2010. The board members of both Prudential and AIG have given their approval, but the deal still awaits regulatory and shareholder approval. The deal already has been given the go-ahead by the U.S. Government, which owns nearly 80% of AIG due to a taxpayer funded bailout of the company for US$182.3 billion. While AIG still owes nearly US$130 billion, it plans on using the US$25 billion cash portion of AIA's sale to Prudential to buy back US$16 billion of preferred interests in the special purpose vehicle holding AIA stocks from the Federal Reserve Bank of New York (FRBNY), and also pay back a further US$9 billion held by the FRBNY Credit Reserve. In total, money paid back from the sale of AIA would make up nearly 20% of the outstanding debt held by taxpayers. Companies Mentioned: AIA AIA LogoAIA is a Hong Kong-based life insurance company doing business across Asia that has been in business since 1919. They service over 20 million policies through 23,000 employees and 300,000 agents throughout markets in Asia, including; Vietnam, Thailand, Taiwan, South Korea, Singapore, Philippines, New Zealand, Malaysia, Macau, Indonesia, India, Hong Kong, Mainland China, Brunei and Australia. AIG AIG LogoThe American International Group is a leading international insurance organization with operations in more than 130 countries and jurisdictions globally. Prudential P.L.C. Prudential LogoPrudential has been in the insurance and financial services business since 1848. Today they operate throughout the UK, US and Asia offering international health insurance and retirement planning services, supported by 27,000 employees worldwide.
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