Prudential Plc's bid for AIG's Asian life insurance unit was close to collapse on Tuesday after the two failed to negotiate a price cut, raising questions about the future of the British insurer and its chief executive.
An unraveling of the insurance sector's biggest-ever takeover could revive speculation of a break-up bid for the British insurer itself, analysts said. For AIG, a failure would set back efforts to repay the U.S. government after a $182.3 billion taxpayer-funded bailout.
Tidjane Thiam, Pru's new boss, had faced rising shareholder discontent over the agreed $35.5 billion cost of buying American International Assurance (AIA), forcing the 47-year-old to ask for a reduction.
Prudential asked American International Group to cut the price to $30.4 billion. But AIG's statement early Tuesday that it would stick to the original terms left Thiam with little prospect to save the deal he launched after just six months in the top job.
Prudential said it would make a further statement when appropriate. Its top management was talking to its leading shareholders ahead of a final decision of the board.
Before making a decision, Prudential wants to clarify whether it is legally obliged to go ahead with a shareholder vote planned for June 7 even if it cancels the deal, sources familiar with the situation said earlier on Tuesday.
AIG Chief Executive Robert Benmosche was in favor of accepting the deal on revised terms as it offered more liquidity, and sooner, another source familiar with the situation said.
But the board, which met late on Monday, decided against doing so. One important sticking point was that AIG's board wanted assurances from Prudential that it would be able to close a revised deal, other sources familiar with the matter said.
Prudential was not able to provide the assurances AIG's board was seeking, said the sources, who declined to be identified because the talks are not public.
Benmosche told employees in an internal memo that AIG would have several options to consider regarding AIA -- more than it did in March. AIG, nearly 80 percent owned by the U.S. government, also would have more flexibility on timing, he said.
These options include selling parts of the AIA business by geography, two of the sources said. AIG could also revive plans for an initial public offering of AIA. ]
The insurer is exploring the idea of making sovereign funds, including Singapore's GIC and Temasek , and Qatar Holdings, key investors in AIA before a float, the Daily Telegraph reported.
The AIA deal, along with another $15.5 billion sale of American Life Insurance Co (Alico) to MetLife Inc , would have brought AIG closer to completely repaying taxpayers.
Our overall strategy remains unchanged, Benmosche said in the memo. We remain focused on monetizing AIA and Alico as quickly as possible so that we can make good on our commitment to repay taxpayers.
AIG's shares closed down 3.2 percent at $34.25.
Prudential shares closed up 6.3 percent at 571.25 pence, fueled by hopes a $21 billion cash call to fund the takeover will not proceed now.
The good thing would be for the Pru to withdraw gracefully, said Paul Mumford, senior fund manager at Cavendish Asset Management. If they do put it to a vote, I'd be very surprised if shareholders vote it through.
JUMP TO ASIA
Prudential was forced to reopen price negotiations with AIG last week as it feared it might fail to attract the required 75 percent shareholder approval.
A failure would cast doubt over the future of Chief Executive Thiam.
Pru will have to explain to us what is strategic plan B, said one shareholder, speaking on the condition of anonymity.
You are probably talking about putting the company under strategic review and maybe not under the current chief executive.
Thiam's handling of the bid was called into question last month when Britain's Financial Services Authority ordered it to boost its capital position, forcing a last-minute delay of publishing details of its cash call.
And less than three weeks after launching the deal, the former McKinsey executive and former Ivory Coast government minister was forced to back away from taking a seat on the board of French bank Societe Generale , after shareholders complained that his new role would distract him from the mega-deal.
Prudential may attract bid interest in the wake of a collapse of the AIA deal, but a lack of well-funded buyers makes imminent approaches unlikely, analysts said.
There's a possibility of that in the medium to long term, but I don't see it in the short to medium term, Panmure Gordon analyst Barrie Cornes said. I don't think there are any obvious takers.
The likely demise of the world's biggest takeover so far this year means a big hit in fees and a reputational blow for the many investment banks involved.
(Reporting by Myles Neligan and Paritosh Bansal; Additional reporting by Douwe Miedema, Clara Ferreira-Marques and Raji Menon in London, and Kristina Cooke in New York; Editing by Michael Shields, Louise Heavens, Karen Foster, Robert MacMillan and Phil Berlowitz)