British insurer Prudential unveiled its $21 billion cash call as it tries to put its takeover of AIG's Asian unit back on track, launching a charm offensive to woo wary shareholders.
Britain's Financial Services Authority forced the country's largest insurer to tweak its $35.5 billion offer for AIA in an embarrassing and unprecedented last-minute delay nearly two weeks ago, telling it to boost capital.
Prudential chief executive Tidjane Thiam - in the job less than a year - today laid out his agreement with the British watchdog, a key step to rescue the deal that will help bailed-out rival AIG to repay the US government.
Shareholders remained sceptical of the heavily discounted share sale, the largest ever to finance a takeover. But Mr Thiam was confident of his plans to make Prudential the largest foreign-owned insurer in rapidly growing Asia.
"We were a little bit like a fighter fighting with one arm behind his back. We were handicapped, we weren't able to answer a lot of questions," Mr Thiam said of conversations with shareholders in recent weeks, adding investors had given Prudential "the benefit of the doubt."
"Overall we feel confident they will support this. We always knew this would be a long, complex and challenging process - what we are attempting has never been attempted before."
Prudential will benefit from money already set aside when AIG was considering an IPO of its Asian unit American International Assurance (AIA), Thiam said.
Prudential will sell new shares at 104 pence, a 39 percent discount to the theoretical ex-rights price (TERP) - in line with rights issues in the financial sector through the crisis - and an almost 81 per cent discount to Friday's close.
But modest improvements to synergies and hints at Asian disposals may not be enough to win over the 75 per cent shareholder support needed to secure the deal and salvage the tarnished credibility of its top management.
"The vote is a really, really difficult one to call... It's a big issue and we are at a very volatile point in markets," said one top-20 investor, declining to be named.
Shareholders will vote on June 7th.
As part of the charm offensive, Prudential and its banks will offer fund managers a fat sub-underwriting fee of 2 per cent, sources familiar with the situation told Reuters. They normally get 1.5-1.75 per cent out of a total 3.5 per cent.
Shares in Prudential, supported in recent weeks on bets the rights issue could be cancelled, were down in early trade but recovered to trade roughly flat at around 542 pence, underperforming the European sector.
Despite speculation on the market, frantic negotiations over the past few weeks have not resulted in changes to the value of Prudential's record offer, but it has tweaked the terms to boost the level of capital held by the group and reassure regulators.
Prudential will also issue one or more bonds to help finance the deal. AIG has agreed to buy up to $1.88 billion worth of the debt if Prudential cannot sell it to the market. This would lower the roughly $25 billion cash component.
Beyond the deal, Prudential has secured a £1 billion debt facility - dubbed the "armageddon fund" - to lift its solvency capital if it hits trouble.