Following the collapse of Prudential PLC’s (PUK) deal with American International Group (AIG) to acquire the latter’s Asian insurance business, AIA Group, Prudential now has to incur a cost of about $662 million (₤450 million) including a break fee of $230.6 million.

Also, PUK will call off the $20.9 billion (₤14.5 billion) rights issue it had announced to partly finance the $35.5 billion deal. The shareholders’ meeting scheduled on June 7 to approve the deal will also be cancelled. PUK will also incur losses on currency hedge, as it was arranging to pay AIG in dollars after raising the cash in pounds.

PUK initially offered a consideration of $35.5 billion to AIG for acquiring AIA Group but slashed the deal value to about $30 billion after facing resistance from its shareholders. However, AIG rejected PUK’s revised offer.

Now, as the deal has collapsed, AIG needs to look for other potential buyers for its AIA Group, as the company was selling its Asian insurance business to partly pay back the bailout money to the Federal Reserve, which rescued AIG from collapse in 2008.

AIG might now get back to its earlier plan of a public offering in Asia to divest its Asian unit. AIA has more than $60 billion in assets operating in markets spanning from China to Australia. Initially AIG intended to divest AIA in October 2008, and in 2009 wanted to seek a public listing on an Asian stock exchange.

As PUK has failed to acquire the Asian business of AIG, it will now have to look for other potential investments to expand its footprint in Asia.

Given the emerging Asian economy and strong recovery of demand for life and savings businesses, PUK performed strongly in the first quarter with its new business sales jumping 30% year over year, indicating strength in PUK’s businesses in Asia and emphasizing the return to economic growth experienced across the region.

PUK continues to protect its strong capital position. Its capital surplus increased to $5.3 billion (£3.4 billion) as of March 31, 2010, from $3.3 billion (£2.3 billion) as of March 31, 2009, supporting PUK’s ability to exploit growth opportunities.
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