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3 March 2010 By John Foley Follow @johnsfoley

The UK life insurer is placing a far higher valuation on AIG’s Asian unit than investors give its own business in the region. That may look fair next to local rivals. But the deal brings big integration risks. With a jumbo rights issue on the way, investors are justly spooked.

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Prudential's shares have fallen sharply since it announced a $35.5 billion takeover of the Asian assets of American International Group on March 1.

Pru's offer values AIA at 1.7 times its embedded value, a measure of the net present value of outstanding business. Before the deal, Pru's own Asian business was valued by analysts at around 1.7 times embedded value, chief executive Tidjane Thiam told press on March 1.

The offer represents a multiple of 25.4 times AIA's new business profit for the year to Nov. 30 2009. However, Prudential believes AIA's new business profit was hurt by its association with the problems at AIG.

Pru's own Asian business has an embedded value of 5.8 billion pounds. In the year to December 2009, Pru generated new business profit before tax in Asia of 713 million pounds, up from 634 million pounds in 2008.

To finance its takeover of AIA, Pru is planning a $20 billion rights issue, as compared with its own market capitalisation on Feb. 26 of $22 billion. The price of the issue will not be set until April.

The UK insurer's stock closed at 488p on March 2, compared with a closing price on Feb. 26 of 603p. At midday in London on March 3 the shares were trading at 504.5p, up 17p.

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