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June 2, 2010

Investment banks lose out as Pru’s AIA bid fails

by Gill Montia

Story link: Investment banks lose out as Pru’s AIA bid fails

Prudential’s failure to renegotiate the price of its AIA acquisition has cast a shadow over the City with analysts suggesting that the abandonment of the deal bodes ill for the firms that earn lucrative fees through mergers and acquisitions.

Prudential agreed to acquire the pan-Asian life insurance subsidiary of US insurer AIG in March, for £24.6 billion, but leading Pru shareholders were unhappy with the price and renegotiations failed.

The insurer has therefore abandoned plans for a UK record-breaking £14.5 billion right issue needed fund the acquisition, with the subsequent loss of fees for the investment banks that would have acted as underwriters.

In addition, Pru would have paid for AIA in dollars, generating costs through currency exchange transactions.

Looking to the future, it is possible that the boards of large UK companies planning right issues, acquisitions and mergers may need to take their shareholders more seriously, in the light of Prudential’s failure.


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