London: British insurance giant Prudential said on Monday it will raise £14.5 billion (€17 billion , $21 billion) from the sale of new shares to help fund a record takeover of Asian insurer AIA.
“Prudential today announces further details of the proposed combination of the Prudential Group and the AIA Group, including the terms of its fully underwritten rights issue to raise approximately £14.5 billion,” a statement said.
The British group had delayed by almost two weeks details of the record rights issue needed to fund the insurance sector’s biggest ever takeover, as regulators voiced concerns about the enlarged company’s capital strength.
Prudential announced in March that it had agreed to buy AIA -- the Asian arm of troubled US insurer AIG -- for $35.5 billion (€29 billion).
It expects to complete the takeover in the third quarter of 2010 while reports suggest Prudential may have to sell its British operations to fund the rest of the deal.
“We are creating the leading life insurer in the fastest growing region in the world, giving us greater exposure to the highly attractive long-term growth offered in Asia,” Prudential chairman Harvey McGrath said on Monday.
“We believe this opportunity will deliver substantial long-term value for our shareholders.”
The takeover will give Prudential about 30 million customers in Asia and see the Asian operation become by far the group’s biggest division -- contributing some 60% of new business profit.
Regarding the rights issue, Prudential said it was offering almost 14 billion new shares, each priced at 104 pence. According to analytical group Dealogic, the rights issue is the biggest ever launched to fund a takeover.
Current Prudential investors will be offered 11 new shares for every two shares they own. The sale price represents an 80.8% discount to the insurer’s closing price of 542.5 pence on Friday.
Prudential’s share price dropped 2.67% to 528.5 pence at the start of London trade.
The AIA deal and the rights issue need 75% backing at a shareholders’ meeting due on 7 June.
“The combined business will be a fast growing and highly profitable company, with a leading position in many of the most attractive markets in the world,” Prudential chief executive Tidjane Thiam insisted on Monday.
“We believe that, through capital management and portfolio rationalization, there will be opportunities for the combined entity to create additional shareholder value over and beyond the revenue and cost synergies identified,” added the Frenchman who put together the mega-deal.
Reports have suggested however that some of Prudential’s biggest shareholders are opposed to the tie-up.
The rights issue is meanwhile set to raise about £13.8 billion net of fees and transaction related expenses, while it is being fully underwritten by Credit Suisse, HSBC, J.P. Morgan Cazenove plus by a syndicate.
These groups will take up any shares not bought by existing shareholders.
Alongside the rights issue, London-listed Prudential has said it plans to begin trading existing shares in Hong Kong and Singapore on 25 May.
The listings are seen as a move to garner support from regional investors for the rights issue.
The Hong Kong and Singapore listings will be done by way of introduction, which means adding trading venues without issuing new shares.
The acquisition of AIA will double the size of Prudential and transform it into the world’s top non-Chinese insurer by market capitalization, ahead of major competitors Allianz and AXA.
Sales in Asia already make up half of new contracts for Prudential across a number of countries including China, India, Indonesia, Malaysia and Thailand. The company also has a strong presence in Britain and the United States.