PRUDENTIAL is set to become the largest insurer in Asia as it confirmed the acquisition of AIA (American International Assurance), American International Group's (AIG) Asia unit. AIG is the American insurance giant that had to be bailed out by the American taxpayer during the global recession and is also the shirt sponsor of Manchester United. The proceeds from the sale of AIA is intended to be used to help pay back part of the whopping $182 billion dollars bail out it received from the US government.
How much?
The deal is worth $35.5 billion dollars ($25 billion dollars will be in cash and the remaining $10.5 billion will be in shares). This totally smashes the $18.9 billion dollars American chocolate giant Kraft paid to acquire the well loved British brand Cadbury. The $25 billion will be raised through a $20 billion dollar rights issue making it the biggest rights issue in UK corporate history. Rights issue is sale of discounted shares to existing shareholders. The remaining $5 billion will be raised through the issue of debt (i.e. loans).
Consequences of the takeover
The announcement of such a massive rights issue meant PRUDENTIAL's shares fell 71½ pences to 528 pences because existing shareholders realised that their holding would be diluted. In other words, the more the shares of a certain company are issued, the lesser the profit-share for the existing shareholders.
Once the acquistion is complete, it would mean that PRUDENTIAL will generate 60% of its profits from Asia while trebling its customers to 30 million.
The future
- AIG is a giant of a company and American at that. Taking over a bigger firm might mean it may be difficult for PRUDENTIAL to control AIG.
- However if all goes well, the potential for growth is massive.
- PRUDENTIAL is traditionally a British company but with this deal and the scales tipping more towards Asia, it might well become an Asian company.
