Prudential seeks rights issue to finance AIA deal
By Robert Barr |
May 18, 2010, Tuesday
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Print Edition
Print Edition
PRUDENTIAL Plc yesterday announced a rights issue to raise 14.5 billion pounds (US$20.9 billion) to help finance its US$35.5 billion acquisition of the Asia-based life insurer AIA Group from bailed-out United States insurance firm AIG.
The announcement had been expected last week but Prudential was delayed by questions raised by the Financial Services Authority, the UK financial regulator.
"We believe that there is very little downside risk in the share price," said Barrie Cornes, analyst at Panmure Gordon. He believes Prudential shares will bounce back whether the deal goes through or not, but he cautioned that "it is very early to form a cast iron view."
Cornes and Shore Capital analyst Eamonn Flanagan both reiterated "buy" recommendations on the stock.
Prudential is offering 11 shares for every two existing shares in the company at an issue price of 104 pence (US$1.50) for shareholders in Hong Kong and Singapore.
The company said yesterday the issue price represented a 39 percent discount based on the expected market price following completion of the rights issue, or a steep 80 percent drop from last Friday's closing price of 542.5 pence.
Prudential also said it plans debt financing to raise US$5.4 billion, and AIG, the bailed-out US insurance company which is selling AIA, has offered a standby commitment to subscribe to up to US$1.9 billion of that financing.
In a separate trading update, Prudential reported record new business sales of 807 million pounds in the first quarter, a 26 percent increase from a year earlier. New business profit was up 27 percent to 427 million pounds.
"We have the team, the skills and the discipline to successfully integrate these businesses and achieve the targets we have announced today," said Group Chief Executive Tidjane Thiam, for whom the acquisition agreement is shaping up as a make-or-break career moment.
"We believe that, through capital management and portfolio rationalization, there will be opportunities for the combined entity to create additional shareholder value over and beyond the revenue and cost synergies identified," Thiam said.
If the AIA deal falls through, Prudential will owe AIG a termination fee of US$230.6 million.
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