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Report Says U.S. Has Back-up Plan on Pru Bid for AIA

Source: Sunday Times

Posted on 24 May 2010

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The US Treasury has secretly resurrected plans to float AIA, the Asian insurer, amid fears that a planned 24 billion pound sale of the business to Prudential, Britain's biggest insurer, could fall apart.

Officials have been working on the plans for two weeks, since the Prudential deal was delayed by the Financial Services Authority.

A number of Asia's biggest financial-services firms, including insurers China Life and Ping An, have been approached by advisers working for the American government. Chinese banks including ICBC and Bank of China have also been sounded out on their appetite to buy as much as 20% of the company as part of a proposed listing.

The American government took control of AIA after bailing out its parent company AIG in a $180 billion rescue deal struck at the peak of the financial crisis. The US Treasury agreed to sell the business to Prudential in February, after tense negotiations in New York and Washington.

The sale now hangs in the balance ahead of a key vote in two weeks by Prudential’s shareholders, many of whom fear that the price being offered is too high. Tidjane Thiam, the Prudential chief executive, and Harvey McGrath, company chairman, are on a whistlestop tour persuading investors to back the deal.

It is understood that Tim Geithner, the US Treasury secretary, still supports Prudential’s offer but has asked for alternative plans to be drawn up.

Prudential’s bid for AIA has been plagued by gaffes and misunderstandings. The FSA’s intervention shocked many investors, and increased opposition to the deal. A number of the company’s core UK investors see it as a risky transaction that will take years to generate a sufficient return.

Analysts at Autonomous Research, an independent researcher, argue that the earnings targets put forward by Thiam for the combined group would be met only if the acquisition price were slashed by $7 billion.

Thiam is betting that the fast-growing economies of southeast Asia, including Hong Kong, Korea and Malaysia, will deliver more revenue than western countries. The deal would hand Pru 20m new customers.