Q&A: The Prudential rights issue

Prudential has announced plans for the biggest rights issue in UK history to raise £14.5bn to buy AIA Group – the Asian arm of US insurer AIG . Prudential's chairman Harvey McGrath describes the proposed deal as a unique opportunity. But what does it mean for ordinary investors? Why does the Pru want to do this? The purchase of AIA will more than double the size of the Prudential, making it the fastest growing and biggest non-Asian insurer in Asia. The Pru has about 7m customers in the UK, while AIA has about 30m in Asia. Jonathan Jackson, head of equities at Killik & Co, says: "The enlarged group will be well placed to benefit from demographic trends – such as increasing life expectancy and falling birth rates – which will force people in the region to save for their retirement. On the face of it, a deal with AIA looks like an excellent fit and provides a unique opportunity to create the leading pan-Asian life insurer." I am a Prudential shareholder – what does this involve? Later this week you should receive a pack enabling you to vote for or against the rights issue at a general meeting on 7 June. If shareholders vote in favour, the Prudential will immediately send out a letter stating how many shares you are entitled to buy and how much they will cost. Every shareholder is entitled to buy 11 new shares for every two existing ones, at an issue price of 104p. This is an 80.8% discount on the 542.5p closing price last Friday. You can either buy your full entitlement of shares, sell part of your entitlement and use the resulting money to pay for the balance, or sell your full entitlement. Your instruction to take up the full rights or to sell your "nil paid" rights must have been delivered to Equiniti (which is handling the administration for the Prudential) by 5pm on the 17 June. If you want to sell part, your instruction must be received by 3pm on 21 June (Monday to Friday, 9.30am to 5.30pm). Shareholders who do anything other than take up their full entitlement will see their existing shareholding diluted, or reduced in value. Share certificates and/or cheques in relation to lapsed rights will be posted to shareholders on 1 July. For further details, call 0871 384 2035. Will the deal definitely go ahead? The Prudential has to obtain approval from 75% by value for the deal to go ahead. Although the Prudential has 70,373 shareholders, the vote will be decided by 282 institutional investors which hold 1m or more shares and 86% of the company. Today's announcement has met a lukewarm response from some of them. As Jackson says, the timing of the fundraising is not ideal, given the market's current nervousness over sovereign debt issues. Shares had slipped to 538.5p by 12noon today after news of the share offer was announced. I don't support the deal – is there anything else I can do? Robin Geffen, managing director of Neptune Investment Management strongly opposes the planned purchase of AIA Group, and has founded an action group to focus opposition. He says: "Like many shareholders, I remain completely opposed to the course of action that Prudential is intending to pursue. Very few shareholders have been consulted and it is not why people bought shares in the Pru. I urge all shareholders who agree with my view to show their opposition to the proposed deal by registering with the Prudential Action Group either online or by telephone." You can register your disaffection at www.prudentialactiongroup.com or by calling 020 7788 7589