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Pru P.L.C. To Pay $35 Billion For AIG Unit

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Prudential P.L.C. has agreed to pay American International Group Inc. (NYSE:AIG) more than $35 billion for AIA Group Ltd.

The price would include $25 billion in cash, equity and equity-linked securities with a total face value of $8.5 billion, Prudential preferred stock with $2 billion in face value.

The price would be subject to closing adjustments, according to AIG, New York.

AIG and Prudential, London, which is unrelated to Prudential Financial Inc., Newark, N.J., hope to complete the deal by the end of 2010.

The boards of both companies have approved the deal, AIG says.

The deal is still subject to approval by regulators, including antitrust regulators, and by Prudential shareholders.

Prudential is one of the largest financial services companies in the world. In the United States, it may be best known as the parent of Jackson National Life Insurance Company, Lansing, Mich., and Curian Capital L.L.C., Denver, a separately managed accounts services firm.

AIG’s AIA Group unit has been selling life insurance in the Asia Pacific region since 1919, and it now does business in Australia, Brunei, China, Hong Kong, India, Indonesia, Korea, Macau, Malaysia, New Zealand, the Philippines, Singapore, Taiwan, Thailand and Vietnam.

AIA sells group life insurance, credit life insurance, medical insurance and pension products. It has 23,500 employees, 323,000 agents and 23 million customers.

If Prudential completes the deal as planned, AIA will assume Prudential’s name, and the headquarters of the combined company will be in London, Prudential says in a statement not distributed in the United States or Canada.

Eventually, Prudential says, it would seek a “dual primary listing” on the Hong Kong Stock Exchange.

The combined Prudential-AIA business would be the largest life insurer in Hong Kong, Indonesia, Malaysia, the Philippines, Singapore and Thailand, and the largest foreign life insurer in China and India.

Prudential says it hopes the combined Prudential-AIA could cut about $340 million in annual expenses.

AIG plans to use the cash proceeds from the proposed AIA Group sale to redeem about $16 billion preferred interests held by a special purpose vehicle affiliated with the Federal Reserve Bank of New York, and to repay about $9 billion it owes on a New York Fed credit facility.

AIG plans to sell the Prudential equity and equity-linked securities over time, after minimum holding periods end, and it wants to use that stream of cash proceeds to repay whatever amount it still owes on the New York Fed credit facility.

AIG announced in 2009 that it would try to sell AIA Group to investors through a public offering. In June 2009, the New York Fed held $16 billion in preferred interests in the AIA special purpose vehicle, and AIG owed about $40 billion on the New York Fed credit facility.

“We decided that a sale to Prudential enables AIG to realize value on a faster track to repay U.S. taxpayers,” AIG Chairman Robert Benmosche says in a statement about the deal.

Like AIA Group, Prudential has a long history of commitment to Asia, Benmosche says.

“This transaction assures AIA of a well-respected, highly-rated, financially strong partner in which its management, customers, employees, agent sales force, and distribution partners can have confidence,” Benmosche says.

Both AIG and Prudential are committed to preserving the AIA brand and the strengths of the AIA sales force, Benmosche says.

Prudential Group Chief Executive Tidjane Thiam says the combination of Prudential and AIA would “create a sector powerhouse in the fastest growing markets in the world.”

Asia accounted for about 44% of Prudential’s 2009 new business profit, and Asia account for about 60% of the 2009 new business profit of the combined Prudential-AIA business, Thiam says.