Prudential plans rights issue
Prudential is planning mammoth rights issue to help fund an audacious takeover of the Asian operations of American International Group - valued at around £23 billion.
The largest insurer in Britain would raise £15 billion through the rights issue to help fund the transaction, which would transform it into the most powerful insurance player in the high-growth Far East.
If the deal goes ahead it would surpass the record £13.5 billion Lloyds Banking Group raised through its recent rights issue.
Prudential has made no secret of its desire to crank up the proportion of sales it derives from Asia from the current level of 40%. But it will need to convince shareholders the swoop on American International Assurance (AIA), which boasts 20 million customers across 13 Asian markets, is worth shelling out for.
Over the weekend, Prudential chief executive Tidjane Thiam was in New York putting the offer to AIG's board. He will need the approval of the US giant's three government trustees, who oversee Washington's 80% stake in the beleaguered insurer, bailed out several times by taxpayers at the height of the financial crisis. A staggering $182 billion was pumped into the company by the government.
An announcement on the deal to the London Stock Exchange is expected as early as this morning. Thiam is racing against the clock as AIG had been grooming AIA for a March flotation, which would have raised an estimated £13 billion on the Hong Kong Stock Exchange.
The listing would have funded a part-repayment of the $80 billion (£52 billion) still owed to Washington.
The initial public offering was put on ice as talks with Prudential entered a closing stage.
Because of AIG's state ownership, the bulk of the offer would have to be settled in cash.
Prudential is understood to have lined up financing with HSBC (HSBA), JPMorgan and Credit Suisse to support its planned share issue, and would not need to sell parts of its UK business to fund the bid.
All three banks, along with Lazards, will advise on the deal. Credit Suisse's involvement as adviser has caused some consternation as it is also listed as a book-runner for the AIA flotation, should the Prudential deal fall through.
Although Prudential does not need to sell, Clive Cowdery's Resolution (RSL) buyout vehicle is believed to have approached Thiam about a purchase of the Pru's UK life insurance operations. Analysts say Cowdery is keen to consolidate on his acquisition of Friends Provident last year with another deal.
AIG is also believed to be close to completing a deal to offload Alico, whose operations are focused in Japan and Europe. MetLife is lined up to buy the firm for a fee in the region of $15 billion. The deal has been delayed by an unresolved tax issue and could yet be blocked by the US Internal Revenue Service.
A way a company can raise capital by creating new shares and invite existing shareholders in the company to buy these additional shares in proportion to their existing holding to avoid a dilution of value, which means keeping a proportionate ownership in the expanded company, so that (for example) a 10% stake before the rights issue remains a 10% stake after it. As an added incentive, the new shares are usually offered below the market price of the existing shares, which are normally a tradeable security (a type of short-dated warrant) and this allows shareholders who do not wish to purchase new shares to sell the rights to someone who does.
Generally thought of as being interchangeable with life assurance, but isn’t. Life insurance insures you for a specific period of time, at a premium fixed by your age, health and the amount the life is insured for. If you die while the policy is in force, the insurance company pays the claim. However, if you survive to the end of the term or cease paying the premiums, the policy is finished and has no remaining value whatsoever as it only has any value if you have a claim. For this reason, life insurance is much cheaper than life assurance (also called whole of life).
Flotation involves a company selling a percentage of itself in the form of shares on a regulated exchange, such as the London Stock Exchange. Prior to flotation, the company is independently audited and valued and shares offered for sale at a price determined by the company’s value. After flotation, the shares are traded on the exchange for what the market deems they are worth. Shares are bought by other financial institutions and private investors.
Generally thought of as being interchangeable with insurance but isn’t. Assurance is cover for events that WILL happen but at an unspecified point in the future (such as retirement and death) and insurance covers events that MAY happen (such as fire, theft and accidents). Therefore you buy life assurance (you will die, but don’t know when) and car insurance (you may have an accident). Assurance policies are for a fixed term, with a fixed payout, and unlike life insurance have an investment aspect: as a life assurance policy increases in value, the bonuses attached to it build up. If you die during the fixed term, the policy pays out the sum assured. However, if you survive to the end of the policy, you then get the annual bonuses plus a terminal bonus.