American International Group Inc. said today it wouldn't reduce the price of Asian life insurance unit AIA to sweeten its deal with British insurer Prudential, possibly hindering a takeover forged in March that would have helped AIG start paying back U.S. taxpayers for its $132 billion bailout.
AIG originally agreed to sell AIA to Prudential for $35.5 billion, a price many shareholders found too high. AIG's board rejected Prudential's $30.375 billion counter-offer, a price AIG shareholders found too low, according to the Wall Street Journal. The U.S. Treasury makes up 80 percent of AIG's shareholders.
U.S. taxpayers affected by AIG deal
AIG's rejection of this offer would postpones the company's plan to start paying back U.S. taxpayers. AIG had also planned to buy back $16 billion in preferred government-owned shares and pay off $9 billion owed to the Fed. Some experts say the insurer may spin off the division as a separate company in an initial public offering, which would go into effect in October and ultimately take longer than a sale.
Analyst Cliff Gallant, who tracks AIG for investment bank Keefe Bruyette and Woods, says if the sale falls through, it'll be a setback for taxpayers. "It'll take a little bit longer to get the IPO done. The financial markets have been very rocky, at least in the last several weeks, so I think there's some question as to whether or not it can be executed at all."
If the IPO goes well, Gallant says taxpayers could benefit in the long run. But he says short-term, they'd be better off with the cash in hand.
Prudential stands to gain from AIG deal
Richard Hunter, head of U.K. equities at Hargreaves Lansdown Stockbrokers, told the BBC that Prudential had a lot to gain from this deal. "Prudential is already fairly well diversified geographically. But clearly it sees Asia as a burgeoning economy today and a burgeoning economy tomorrow. Clearly it will be a bitter blow for the company if the deal wasn't to come through."
It's not yet clear whether this rejection will kill the deal, but analysts say Prudential will probably walk away. Prudential shareholders were scheduled to vote on June 7.