Prudential bids to double in size by buying AIG Asia

Following the scent of the Asian tiger, the venerable Prudential is set to transform its business by purchasing the Asian arm of AIG, the troubled US insurance giant.

According to reports last night, the Pru will pay $35bn in cash for AIA in a deal that will more than double its size and turn it into an Asia-focused business.

If negotiations are concluded successfully the deal will be a "stunning coup" for the Pru, says the FT. The paper notes soberly how soon after the crisis of 2008, companies are once again lusting after "transformation and grabbing ever greater size".

For AIG, too, the deal represents a change in approach. The firm was expected to take AIA public to help pay down the $182bn rescue it received from the US government. The sale price is close to what a stock market flotation might have raised but a private sale gets at least $16bn back into the US government's coffers sooner.

The Pru can't buy AIA outright; it plans a rights offering of about $20bn to finance the purchase with bridging loans and guarantees provided by Credit Suisse and JPMorgan Chase.

News of the deal leaked ahead of a planned announcement this morning. The banks are sure to be making tens of millions in fees and consultancies and those known to have taken advisory roles include Goldman Sachs, Blackstone, Lazard and HSBC.

The FT warns that after a weekend of tense discussions the deal could still fall to pieces. Last night AIG chief executive, Robert Benmosche, was travelling to Hong Kong to brief regulators and it is still considered possible that a rival bidder could step in.
But the outline of the Prudential-AIG deal has already been approved by the US Treasury and the New York Federal Reserve, which still own roughly 80 percent of the American firm between them.

Prudential CEO Tidjane Thiam, who was in New York last week, is understood to want to raise the proportion of the firm's Asian sales to 80 percent by 2015 from 50 percent now to offset the slowing growth of the British and European business.

Assuming the deal goes through, it will prove a remarkable testament to the staying power of a firm founded in 1848 in London's Hatton Garden, where the company perfected its original innovation of selling life insurance to the working class through door-to-door salesmen - the "Man from the Pru".

Thiam's strategy is in at least one respect identical to the Pru's original strategy 162 years ago: as Britain was then, Asia is now the fastest-growing market for life insurance. ·