LONDON An influential voting adviser, RiskMetrics, has told investors in Britain's Prudential (PRU.L) to vote against the ambitious $35.5 billion takeover of AIG's Asian arm, despite acknowledging the strategic rationale for the deal.
Just over a week before a key vote on the deal, which would turn Prudential into the largest foreign-owned insurer in fast-growing Asia, RiskMetrics Group RISK.N said Prudential was paying a "full price" for American International Assurance.
It said Pru would need very high growth rates at AIG's (AIG.N) American International Assurance to meet "reasonable" return on invested capital, "something that seems a stretch when managing a difficult integration process."
"A full price, integration risks and ambitious targets that barely meet the cost of capital do not make a compelling combination," the report said.
"For this reason, it is recommended that shareholders vote against the acquisition of AIA at the General Meeting."
Prudential has faced considerable hurdles in the run-up to the vote early next month, not least an unprecedented and unexpected regulatory hitch that held back details of its bid and the publication of its prospectus for almost two weeks, fuelling investor and market skepticism about the deal.
Many shareholders and investors have expressed reservations over the high cost of the takeover, which will be financed through a record $21 billion rights issue.
RiskMetrics said that based on the deal and trading multiples, the price tag being offered was "fair," but said it did not follow that the deal made sense for Prudential.
It said the price did not reflect a discount for AIA's situation -- the near collapse of its parent, U.S. giant AIG, and a drop in its own new business sales in key markets last year -- and said profit targets for the deal to work were "on the high side."
Shareholders are due vote on June 7. Prudential needs 75 percent of voting stock to be cast in favor for the deal to go through.
A Pru spokeswoman said the firm disagreed with the RiskMetrics recommendation, arguing its profit targets for the deal are "robust and achievable."
"We believe that the combination of AIA and Prudential represents a compelling combination that will deliver very attractive returns to our shareholders," she said.
Pru's top management is currently meeting shareholders to sell the deal, the biggest ever in the insurance sector.
Prudential Chairman Harvey McGrath said on Tuesday that he was confident the majority of investors would support the acquisition in a vote scheduled for June 7.
Separately, another proxy voting adviser, Manifest, said it had reservations about how some Pru board members were remunerated, but doubted that any such considerations would affect a vote so tied to core corporate strategy.
Manifest CEO Sarah Wilson said she doubted whether any fund managers would rely on proxy advisers to guide or conduct voting on an issue so fundamental to the future of the company.
(Reporting by Caroline Copley, Joel Dimmock and Denny Thomas; Editing by Mike Nesbit)