Prudential was seeking to lower the price to $30.4 billion. New York-based AIG "will adhere to the original terms of its previously announced agreement with Prudential," it said in a separate statement.
Prudential will now have to pull back gracefully - a very costly mistake. AIG will be entitled to a breakup fee and legal fees amounting to $652 million if Prudential is unable to complete the purchase.
The group could itself be broken up as a result of the collapse. Analysts say this is an option that could have shareholder approval, although there is no clear buyer. In addition, the fact that the chairman and the CEO seemed to stake their reputations on the deal, puts them in a position that some shareholders and analysts think is close to untenable.
Chief executive Tidjane Thiam, who has led the company since October, pushed strongly for the deal saying it would give the group a leading position in Asia -- a region with huge potential for the firm. The combined company would have been the largest life insurer in Hong Kong, as well as in Singapore, Malaysia, Thailand, Indonesia, the Philippines and Vietnam.
Paying $35.5 billion for AIA would have created an entity worth $60 billion by 2013, Thiam earlier said.The takeover was the biggest announced in the world this year, according to data compiled by Bloomberg, but the collapse of the deal could deprive Prudential's advisers of as much as $1.2 billion in fees for advising on the purchase and the rights offering. No wonder some leading investors have called for Thiam to step down.
Brand health diagnosis
Rachel Catanach, SVP and GM, Fleishman-Hillard Hong Kong:
"The damage to Prudential's reputation due to its badly-executed and costly bid for AIA is greater for its leaders than for the brand. Acquisitions fail every day for various reasons. What makes this failure particularly damaging are the communication mis-steps by Prudential management, combined with very public hubris.
There have been calls for Thiam to resign by shareholders. However, that is unlikely in the short term unless shareholders really demand it. Chairman Harvey McGrath said the Board does not believe the failed bid has any bearing on the CEO's ability to run Prudential. Despite this, the CEO needs to demonstrate quickly and decisively that he has the competence to take the company forward. What is the vision for the company now the prospect of becoming the foreign leader in one of the world's fastest-growing financial services markets is dead? Customers will want reassurance that they are with the right company and that Prudential is committed to the region. Shareholders will want the business stabilised as soon as possible so Prudential itself doesn't fall victim to an opportunistic bid."
David Ketchum, president, Bite Communications Asia-Pacific:
"Prudential's next steps must address the needs of multiple stakeholders. Much more is on the line than just how the brand is perceived. With the AIA deal off, Prudential is open to break-up bids as the underlying value of the businesses is higher than the stock price indicates.
Investors want to know that Prudential knows how to unlock shareholder value. Policy holders and customers want to know that their insurance provider will still be there for them.
It's OK for a company to try an ambitious take-over and fail, but since Prudential's transaction did not go through, concrete action needs to be taken. Prudential should sell or demerge some of its divisions in a decisive restructuring that will send a message that this is a solid, well-managed, profitable company that will be around tomorrow. When you are in the business of offering your customers financial certainty, the one brand attribute you cannot afford is financial uncertainty. Once Prudential - and its management team - has shown that it is in control of its own destiny, the company will have the right foundation for hard-hitting investor relations, advertising campaigns, and CRM programmes."
This article was originally published in the 17 June 2010 issue of Media.
