Posted on Jun 02, 2010 by Sergio Ulloa
What could have resulted to be a game changer for the insurance industry in Asia appears now to be in the process of falling apart by bits, pieces and big chunks in the failed negotiations between Prudential and AIG to acquire AIA in a US$35.5 billion deal (EUR 29.1 billion).
Taxpayers in the US will have to wait a bit longer to get reimbursed by AIG, after the company decided not to lower its original asking price for AIA, whilst Prudential is now moving to negotiate with AIG on the termination of the deal.
Initially heralded as a deal that would give Prudential a firm foothold into the Asian insurance market
, the deal started to experience unexpected regulatory challenges by the Financial Services Authority of the UK
, then an orchestrated revolt by key shareholders
and most recently, the failed bid to lower the asking price for AIA to US$30.4 billion (EUR 24.9 billion).
The original cash offer was US$25 billion (EUR 20.5 billion) and later reduced to US$23 billion (EUR 18.9 billion).
New plans need to be formulated for repaying the US$132 billion (EUR 108.2 billion) bailout AIG received from the US government, which brings the task back into the radar of pressing issues to resolve.
At the beginning of the AIA deal negotiations, Prudential and AIG had agreed on a GBP 152.6 million breakup fee
, which at that time was worth US$231 million (EUR 189.3 million now). Prudential now estimates that the total cost for not going ahead with the deal will be closer to GBP 450 million (US$ 661.5 million).
Given the current situation with the economy in Europe, and the amount of money Prudential will pay for backing off, the deal is perceived by some market players as being a massive waste, which at the end may claim the head of the CEO, Tidjane Thiam, who has been on the job for less than one year.
Insurance Companies mentioned:
Prudential 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.
The American International Group is a leading international insurance organization with operations in more than 130 countries and jurisdictions globally.
AIA 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.