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.
AIG, which was rescued in a $182.5 billion bailout by the U.S. government in September 2008, will get $25 billion in cash -- $20 billion of that from a Prudential rights issue -- and $10.5 billion in new shares and securities for the sale of AIA Group Ltd.
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.
Prudential shares 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.
Prudential said it expected to complete the acquisition 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.
AIG said Friday it lost $8.87 billion in the fourth quarter as its general insurance business remained weak. The U.S. government now holds an 80 percent stake in the company.
The Prudential deal will involve creating a new company, also to be known as Prudential PLC and listed on the London Stock Exchanges, which will acquire the assets of the existing company and of AIA, Prudential said.