The British insurer is in talks to abandon its $35.5bn (£24bn) deal to buy AIA, after AIG refused to slash the price of its Asian arm by $4.6bn. That refusal could prove the final nail in the coffin for the deal – the Pru needed the lower price to persuade shareholders to support it.
Under the terms of the contract AIG could now force the Pru to stick to the existing plan to put the acquisition to the shareholder vote, but it doesn't take a genius to work out that it would be highly unlikely to secure the 75% of the votes it needs for the deal to go through.
It marks the final stage in an embarrassing exercise for the Pru – and an expensive one at that. While shareholders will be likely to breathe a big sigh of relief that the deal is no longer on the table, the news that the insurer is expected to pay almost half a billion quid in fees to advisors including JP Morgan and Credit Suisse, as well as a consortium of lawyers led by Slaughter and May, is unlikely to go down well. You could forgive Pru boss Tidjane Thiam for feeling a little nervous this morning.
Of course, he wouldn't be the first to fret among the Pru's stakeholders. The sheer scale of the bid – unprecedented in the insurance industry – put many of his investors on edge from the off. Others were unsure that the deal made sense at all: after all, it made the Pru a much riskier investment.
The company has long been seen as a safe bet – nice, stable, and most importantly, cash-generating – and this new riskier proposition was just not what investors had signed up for. The timing wouldn't have helped much either – despite improvements from a year ago, it's still not the time to be performing high-risk manoeuvres with other people's cash.
With so much time – not to mention money – having been wasted on the shambles, it's likely that heads will roll in the Prudential boardroom. And unfortunately for Thiam, he looks likely to be the first in the firing line. He'll certainly need to pull out a pretty impressive plan B to regain credibility with investors.
Thiam initially announced the audacious AIA bid only five months into his tenure, as he revealed the Pru's 2009 results. ‘If M&A is a right, I believe we have earned that right,' he proclaimed. Unfortunately for him, others may now feel they've earned their right to give him the boot.
In today's bulletin:
Thiam's head on the block as Pru abandons AIA deal
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