Biggest Deal For 2010: A "Prudential"-AIA Merger

The long anticipated move out of AIG (NYSE:AIG), to offload its Asian subsidiary under full control by the United States Federal Reserve Bank of New York since the financial collapse back in 2009, has hit a rough patch. On Tuesday, December 1, 2009, AIG stated “the placement of its holdings in American International Assurance Company and American Life Insurance Company in special purpose vehicles will position the units for initial public offerings or third-party sales” as quoted directly from the Wall Street Journal. AIG has cut total government credit available to its financial stronghold to $35 billion from $60 billion, back in December 2009, as the New York Fed extended its credit facilities to AIG September 2008 to “rescue the insurer.”. In reducing its debt to the federal government, two units for spinoff and/or sale AIA and ALICO, enables the Federal Reserve Bank of New York to receive preferred interests in repayment of a portion of the FRBNY facility from AIG.

Atop an irresponsible reverse stock-split against shareholder value in June of 2009, AIG has been struggling to unwind its various subsidiaries since the beginning of the financial crisis in 2008, amidst crumbling financial markets and a worldwide liquidity crises. Prudential (LON:PRU) and AIA, has come to no avail for AIG quite yet, as Prudential’s decision to call off its acquisition of AIA on Wednesday June 02, 2010 placed a viable alternative for AIG to gain from this deal off the table. Reciprocally, Metlife Incorporated has been after the AIG insurer ALICO since February of 2009, and on March 8, 2010, MetLife announced the acquisition of the international leader life-insurance business ALICO from AIG. MetLife will pay approximately $15.5 billion for the deal, including $6.8 billion in cash and the remainder in equity securities. The price of the deal is expected to close by the end of 2010, and is still subject to closing adjustments. But the cards are not dealt completely for AIG quite yet on its AIA arrangement, as AIG accepts a five-year time horizon for its liquidity special purpose vehicle with the New York Fed, plus an initial public offering for AIA shares on an Asian exchange. So, AIG does not seem to be in a rush.

The question remains, what will come of this rough patch for AIG on a potential AIA merger with Prudential Plc in the meanwhile? Prudential chairman Harvey McGrath, is quoted stating in the Memphis Daily News “We listened carefully to shareholders over the price and initiated a renegotiation of the terms with AIG. Unfortunately, it has not been possible to reach agreement so we feel it is in the best interest of our shareholders not to pursue this opportunity.”. But, are the shareholders really the central focal point for a Prudential withdrawal on the AIA deal? Have AIG and Prudential really gone OUT OF THEIR WAY on solidifying a “shady back-room deal” for the sale of AIA, to then retract this argument on the account of the shareholders at Prudential Plc? I hear many Prudential Plc shareholders, today, large and small complain of Prudential’s “solvency rate” on a break-up of Prudential from an AIA deal. ”Although we have a 955 pence break up valuation on Prudential we do not think that Pru is an immediate break up candidate given the current investment markets” said Barrie Cornes, an analyst at Panmure Gordon, to the Memphis Daily News. Robin Geffen of Neptune Investment Management, a leader of the investor revolt against the AIA acquisition, said “From the beginning it has been an absurdly ambitious attempt by the Pru to buy a large Asian company, at a very high price, with a very unclear strategy”. He is also duly noted stating in the Memphis Daily News “common sense has prevailed.”.

Can Prudential, continue on to solidify a more profitable buyout deal for AIA, under the extreme circumstances for AIG? Will AIA make another go around at the bid, by getting more investors on their side besides Prudential Plc, without pulling off an initial public offering before the five-year period granted by the New York Fed? Rumors that Metlife would buyout ALICO had been circulating as early as February of 2009. Prudential Plc, finds in its best interest, covered bond legislation for European investment that will end up pulling the benefit of the doubt in its favor onto the new insurance wing. What will be the fate, then, of an AIA turnaround for the Fed and AIG from a 2009 takeover as AIG is after all primarily indebted $180 billion dollars in TARP funds still owed to the Treasury of the United States, since the financial crisis began?

Is the entire merger all an interest primarily pointed toward AIG??

Sourcing:
http://en.wikipedia.org/wiki/American_International_Assurance
http://en.wikipedia.org/wiki/Metlife
http://en.wikipedia.org/wiki/Prudential_plc
http://www.nytimes.com/2010/06/11/business/11views.html?src=busln
http://memphisdailynews.com/editorial/Article.aspx?id=50426
http://www.reuters.com/article/idUSN1422287420100614
http://www.independent.co.uk/news/business/news/resolution-close-to-deal-for-axa-life-insurance-1998417.html
http://media.corporate-ir.net/media_files/irol/76/76115/releases/030209_AIA.pdf
http://online.wsj.com/article/SB10001424052748704107104574569250847894362.html
http://online.barrons.com/article/SB50001424052970203296004575307113048786930.html
http://industry.bnet.com/financial-services/10001912/is-metlife-finally-ready-for-an-acquisition/
http://www.dsnews.com/articles/rep-garrett-re-introduces-covered-bond-legislation-to-spur-mortgage-financing-2010-03-19
http://www.cnbc.com/id/37334644
http://imarketnews.com/node/13092