Prudential is to conduct the world's biggest rights issue to finance the takeover of AIG's Asian assets in a "transformational" $35.5bn (£23bn) deal announced this morning.
Britain's biggest insurance firm confirmed that it has reached agreement to take control of AIA, following a weekend of negotiations. The deal will radically change Prudential's business, making it the biggest operator in the Asian insurance market.
Prudential will pay AIG $25bn in cash plus $10.5bn in shares. To finance the acquisition, the company plans to raise $21bn from its investors, including around $1bn of fees to investment bankers to arrange the cash call. This breaks the previous record held by Lloyds Banking Group, which conducted a £13.5bn ($20.2bn) cash call last November.
Shares in Prudential plunged by 12% after the deal was announced, losing 64.5p to 538p. They had been suspended earlier this morning before trading began.
Tidjane Thiam, chief executive of Prudential, said the deal will create a "unique life insurance business".
"This transaction is hugely exciting and a one-off opportunity to transform the group," said Thiam, who was appointed as CEO almost a year ago.
"Asia has been very clearly a major driver of value for Prudential for several years and in 2009 it accounted for 44% of new business profit after tax. The combined group would have 60% of 2009 new-business profit coming from Asia and puts us in a strong leadership position in all the critical growth markets in the region," he explained.
Thiam also confirmed that Prudential's headquarters will remain in London, and said that the UK remained "key" to the company's future prospects.
Once the deal is finalised, Prudential will combine AIA with its existing Asian operations. The combined company will be the leading life insurer in Hong Kong, Singapore, Malaysia, Indonesia, Vietnam, Thailand and the Philippines. "The significantly increased scale of operations is expected to enhance customer choice and service," Prudential pledged.
AIG said that the proceeds of the sale will be used to pay off some of the $85bn bailout it received from the US government in September 2008.
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