LONDON – British insurer Prudential PLC said Monday it will buy the Asian unit of American International Group Inc. in a deal worth $35.5 billion that will allow AIG to pay back some of the money it owes U.S. taxpayers.
The combined group will be the leading life insurer in Hong Kong, Singapore, Malaysia, Indonesia, Vietnam, Thailand and the Philippines, as well as the biggest foreign life insurer in China and India, Prudential said.
Shares in Prudential PLC — which is not connected to Prudential Financial Inc., based in Newark, N.J. — fell 11 percent to 535.5 pence on the London Stock Exchange following the announcement.
"Whilst in the longer term we can see the advantages of this audacious and opportunistic acquisition, on a 12 month view, we think that the shares will underperform," said Barrie Cornes, analyst at Panmure Gordon.
AIG, which is now 80 percent-owned by the U.S. government, said Friday it lost $8.87 billion in the fourth quarter as its general insurance business remained weak.
As of Dec. 31, AIG's outstanding assistance from the U.S. government totaled $129.26 billion, up 5.7 percent from the end of the third quarter due to accrued interest.
That total includes $94.76 billion in loans and interest, and $34.5 billion tied to the value of investments the government bought from AIG. As those investments pay off or rise in value, the government recoups more money.
Last month, MetLife Inc. confirmed that it is in talks with AIG to buy one of AIG's insurance units. Media reports price the deal at as much as $15 billion. The two companies have been in discussions for months about a potential deal for AIG's American Life Insurance Co., known as Alico.
Prudential said it expected to complete the acquisition of AIG's Asian unit in the third quarter, subject to approval from regulators and shareholders.
"This transaction is hugely exciting and a one-off opportunity to transform the group," said Prudential CEO Tidjane Thiam.
"Asia has been very clearly a major driver of value for Prudential for several years and in 2009 it accounted for 44 percent of new business profit (post-tax)," he added. "The combined group would have 60 percent of 2009 new business profit coming from Asia and puts us in a strong leadership position in all the critical growth markets in the region."
Prudential estimated pretax savings of $340 million per year within three years.
"This acquisition is not about cost savings," Thiam said in a conference call. "We are making this transaction because we believe there is extraordinary growth in Asia."
Prudential said its sales were up 42 percent in the fourth quarter in Asia, which the company calls "the engine of the group's future growth."
Prudential released its 2009 results ahead of schedule on Monday, reporting a net profit of 676 million pounds ($1.01 billion) compared to a loss of 396 million pounds in 2008.
The Prudential deal will involve creating a new company, also to be known as Prudential PLC and listed on the London Stock Exchange, which will acquire the assets of the existing company and of AIA, Prudential said.