Prudential shareholders 'should vote against AIA takeover'

26 May 2010

Prudential's attempts to win shareholder approval for its planned takeover of American International Insurance (AIA) have been dealt a blow after investors were advised not to support the deal.

The company has provisionally agreed to pay $35.5 billion for the Asian subsidiary of American International Group (AIG) but it needs the backing of three-quarters of its shareholders for the purchase to go through.

A new report by international proxy advisory service RiskMetrics has now told shareholders that the deal is not worth supporting, due to the fact AIA recently reported a post-tax profit of $1.6 billion, reports the Financial Times.

"For this [deal] to work, profits have to grow substantially beyond the expected cost synergies," shareholders were advised.

"Our analysis indicates that Prudential needs very high growth rates at AIA to only meet a reasonable return on invested capital, something that seems a stretch when managing a difficult integration process."

Prudential responded to the RiskMetrics report by stating it will hit its targets if the takeover goes through, helping to deliver value for its investors.

Harvey McGrath, chairman of Prudential, stated he was "confident" that the company's shareholders would back the deal at the vote taking place on the issue on June 7th 2010.

Earlier this week, it was reported that Mark Wilson, the chief executive officer of AIA, will resign from his post if the agreement goes through.

Insider sources stated that he believes the merger is a "disaster waiting to happen" but Prudential has moved to quash these reports.

A company statement said: "We have not had any indication from Mark Wilson that he intends to leave AIA."

If the deal does go through, AIG intends to use some of the money it will receive to pay off a portion of its debts owed to the Federal Reserve Bank of New York.

By Tony Aynsley

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