British insurer Prudential Plc fueled worries over its planned $35.5 billion acquisition of AIG's Asian unit as a last-minute regulatory delay forced it to put on ice its bumper cash call.
Britain's largest insurer had been expected on Wednesday to price a $21 billion rights issue and to publish details of the acquisition, a daring move by Chief Executive Tidjane Thiam after only a year in the top job.
Instead, it issued a surprise statement that it was still in talks with Britain's Financial Services Authority (FSA) over its capital position and would revise the timetable for its purchase of American International Assurance (AIA).
The delay stoked shareholder anger and raised doubts over how well prepared was the deal, key to helping AIA's bailed-out U.S. parent AIG repay taxpayer debt.
This does make us more anxious, absolutely. It's shambolic, one top-10 Prudential shareholder said.
If they cannot get this sorted out, it doesn't give you a lot of faith in the due diligence across the whole deal. It's not good -- it doesn't fill you with confidence.
The news helped lift Pru shares in early trade on relief it could be forced to drop the rights issue. But the stock pared those gains to trade down 1.7 percent at 549p by 0912 GMT. At that price, Prudential is worth roughly 14 billion pounds ($21.3 billion).
Prudential said it did not expect the delay -- described by people familiar with the matter as technical and definitely fixable -- to affect the timing for the completion of the deal, still expected during the third quarter.
The regulator was erring on the side of caution as it reviewed one of the most audacious financial services deals since the credit crisis, the sources said.
Prudential, told by regulators last night of the need for a delay, is now expected to price the cash call and publish supporting documents by Friday, though that could still be pushed into early next week.
In a minor piece of comfort, the sources said Pru had not yet printed paper copies of the prospectus -- likely to run into hundreds of pages -- thus avoiding a costly reprint.
Prudential faced the makings of a shareholder revolt last week, with reports saying its largest shareholder, Capital Research & Management, had reservations about the deal and would prefer the UK-based group to be broken up.
Pru -- which stands to become the largest foreign insurer in Asia if the deals goes through -- needs 75 percent of shareholders to back its bid and Wednesday's unexpected delay added to shareholder misgivings.
This is unprecedented, a top-20 investor said. However you look at it, you cannot construe this as a positive development. The main point is that shareholders still haven't seen the prospectus and we still don't have any hard numbers. We don't even know if it's a 24-hour delay or longer.
Prudential did not specify the nature of the regulator's concerns, which relate to the capital position of the enlarged group under the Insurance Groups Directive (IGD), European Union regulation used to measure regulatory capital surplus.
It has been discussing solvency with the FSA for weeks and is not expected to lift the size of its rights issue. Instead, it could restructure part of its funding including 5 billion pounds of senior debt, sources familiar with the matter said.
The FSA declined to comment.
It is too early to call the death of the deal, said analyst Eamonn Flanagan at brokerage Shore Capital. There is shareholder dissatisfaction, but until investors actually have something to vote on, it is too early to talk about the implications of this delay.
The delay will also be closely scrutinized in the United States, where AIG's $182.3 billion taxpayer-funded rescue has caused enormous popular anger and both the government and the company are eager for repayment.
The AIA deal is a key part of those efforts, as along with the sale of American Life Insurance Co to MetLife Inc it would help the insurer remove one of the main pillars of government support -- a credit facility from the Federal Reserve Bank of New York.
Prudential's cash call is fully underwritten by Credit Suisse, HSBC and JP Morgan Cazenove.
(Additional reporting by Raji Menon; Editing by Douwe Miedema and David Holmes)