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AIG faces lower offer for Asian unit as negotiations continue

By Hugh Son
Washington Post Staff Writer
Monday, May 31, 2010; A11

American International Group, the bailed-out insurer, remains in negotiations to salvage the sale of its main Asia unit after Prudential requested a lower price to win shareholders' approval.

Prudential asked that the $35.5 billion price for AIA Group be cut to about $29 billion to $30 billion, and New York-based AIG is seeking at least $32 billion, said a person with knowledge of the talks who spoke on the condition of anonymity because they are private. London's Sunday Times reported that Prudential won backing for the deal from investors provided it cut the price by more than 10 percent.

AIG was forced to reopen negotiations when some of London-based Prudential's biggest shareholders said they may reject the transaction at a June 7 meeting. The U.S. Treasury Department, which helped rescue AIG in 2008, said it hadn't considered alternatives to the original terms as of late Friday. AIG signaled that it has other options for AIA, according to a person briefed on the stance of management.

"They need to get the price down, otherwise there's no deal," said Julian Chillingworth, who helps manage $21 billion including Prudential stock at Rathbone Brothers in London. "We're looking for a meaningful reduction. The market's roughly 10 percent lower than when they started the deal, so you need a reflection of that plus a bit more."

Andrew Williams, a spokesman for Treasury, said Friday that the department hasn't weighed alternatives to the $35.5 billion contract announced in March and that "AIA is a valuable business for which there is significant interest." AIG's board met that day and hadn't considered a reduced offer, according to a person with knowledge of the meeting. The board will ultimately decide whether it will accept a new deal, the person said.

Joe Norton, a spokesman for AIG, didn't return a call seeking comment. Prudential's Edward Brewster declined to comment.

Prudential chief executive Tidjane Thiam, 47, needs 75 percent of investors to support a rights offer at the insurer's annual meeting. Prudential investors including BlackRock and Fidelity Investments said the takeover was too expensive, a person with knowledge of the matter said last week. Thiam was in the United States this weekend.

Prudential's biggest investor, Los Angeles-based Capital Group, is expected to vote in favor of the deal if the price for AIA Group drops to between $31 billion and $32 billion, the Sunday Times reported, without sourcing the information.

The U.S. government, which took a stake of almost 80 percent in AIG after the 2008 bailout, is willing to allow the insurer to lower the price, people familiar with the matter said last week.

The $35.5 billion deal announced in March included about $25 billion in cash and the rest in securities linked to Prudential shares. Prudential's latest offer of about $30 billion mostly reduced the amount of securities AIG would receive, said a person with knowledge of the discussions.

Under the original terms of the sale, the 162-year-old British insurer had to pull off a $21 billion rights offer, the biggest ever for an acquisition, at a time when Europe's sovereign debt crisis was sidelining corporate fundraising worldwide.

At least 19 companies have postponed or withdrawn $5 billion in U.S. debt sales since April 13, data compiled by Bloomberg show. Investment banking fees from acquisition advice and share and bond sales in Western Europe dropped 17 percent in the first four months of 2010 compared with the previous year, New York-based research firm Freeman & Co. said.

AIG had negotiated "a very aggressive price" for AIA, chief executive Robert Benmosche told the Congressional Oversight Panel last week during a hearing into the company's bailout. The unit may be valued at slightly less than $30 billion in a public offering, according to an analysis done before the March announcement by Angelo Graci, managing director at Chapdelaine Credit Partners.

Selling AIA, which operates in 13 markets from China to Australia and has 23 million customers, would be AIG's biggest step to repay U.S. taxpayers for loans within its $182.3 billion government rescue. If the Prudential deal fails, it could delay AIG's effort to repay. The insurer planned to use proceeds from the sale, and a separate deal to sell American Life Insurance Co. to MetLife, to pay down a Federal Reserve credit line.

The insurer could hold a public offering for AIA should the sale to Prudential fail, said Jim Millstein, Treasury's chief restructuring officer. AIG had previously planned on a public offering for AIA until Benmosche, 66, decided to accept Prudential's offer.

"The deal's not dead until it's dead," said Eamonn Flanagan, a Liverpool, England-based analyst at Shore Capital Group. "Treasury could just be playing hardball here. There will be a lot of posturing from both sides." He recommends buying Prudential shares.

-- Bloomberg News

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