Pru launches issue to buy AIA

Prudential has finally announced the proposed £14.5bn rights issue to buy AIG’s Asian life unit AIA, after being forced to delay to meet concerns raised by the Financial Services Authority (FSA).

• The Rights Issue will be made on the basis of 11 Rights Issue Shares for every two Existing Shares at an Issue Price of 104 pence per share (HK$11.78 for HK Shareholders and Singapore Shareholders).
• The Issue Price represents a 39.3% discount to the theoretical ex-rights price based on the Closing Price of 542.5 pence on 14 May 2010 and a 80.8% discount to that Closing Price.
• Debt financing arrangements have been revised to include facility for $5.4bn of hybrid capital.
• There is a standby commitment from AIG to subscribe for up to $1.875bn of hybrid capital.

The Prudential predicted cost savings of $370m pre-tax during 2013, with a target to achieve an IFRS pre-tax operating profit for Asia combined business of at least £3.26bn in 2013 and to more than double combined Asian EEV pre-tax new business profit to at least £2.8bn in 2013.

Fastest growing region

Harvey McGrath, chairman, said: "This combination represents a unique opportunity for Prudential and its shareholders. We believe that this transaction offers compelling strategic and financial benefits and will deliver excellent returns for shareholders.

“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. We believe this opportunity will deliver substantial long-term value for our shareholders."

Combined businesses

Tidjane Thiam, group chief executive, said: "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. The combined business will be in an excellent position to capture sustainable and highly profitable growth.

“We have the team, the skills and the discipline to successfully integrate these businesses and achieve the targets we have announced today.

“We believe that, through capital management and portfolio rationalisation, there will be opportunities for the combined entity to create additional shareholder value over and beyond the revenue and cost synergies identified."

Prospectus and results

The Rights Issue Prospectus is expected to be published later today. The Court Meeting and the General Meeting to obtain the approval of Prudential shareholders for the necessary resolutions to implement the Scheme and the Rights Issue will take place on 7 June 2010.

The Prudential also announced Q1 results this morning showing record new business sales at £807m up 26%, with Asia sales up 30% and new business profit in Asia up 35%.