By Jamie Dunkley and Graham Ruddick Published: 9:31AM GMT 01 Mar 2010  The boards of both insurers and US officials were understood to have agreed a deal in principle. US government support is vital as the state will have the final say, having bailed out AIG with $182bn of taxpayer funds during the financial crisis.  Prudential is expected to pay $25bn in cash and the balance in equity, which may be in preference shares, options or warrants. It is expected to raise around £15bn through a rights issue, the biggest-ever attempted by a UK company, with backing from investment banks HSBC, Credit Suisse, and JP Morgan.  Tidjane Thiam, Prudential’s chief executive, was in New York over the weekend, where AIG held a board meeting, to thrash out deal. The acquisition of AIG’s AIA division would transform Prudential into the biggest international insurer in Asia. AIA is at present the largest insurer in the Far East, with Prudential the number two. A combination of the groups would create one of the world’s most influential financial services companies. The increased focus on the Far East could be followed by Prudential’s exit from Britain, where it has operated since 1848.  Clive Cowdery, the founder of Resolution, has held talks with Mr Thiam in the past about a deal to buy Prudential’s £6bn UK arm, although Resolution denied this morning the two parties were currently in talks.  Prudential entered into talks to buy AIA in late 2008 under Mr Thiam’s predecessor, Mark Tucker. However, Mr Tucker pulled the plug on negotiations a few months later after the two sides failed to agree a valuation.  Prudential, which has overtaken Aviva as the UK’s largest insurer, believes that its own renewed strength following the financial crisis, as well as the uncertainty surrounding global stock markets and flotations, has given it the upper hand.  Mr Thiam has identified south-east Asia as a potential “sweet spot” of growth for the future because of its rising wealth and low insurance penetration.  AIG was preparing a float of AIA in Hong Kong to raise up to $20bn, in order to help refund the $182bn pumped into the business by the American taxpayer.  However, the US government now appears to be more open to a sale than in 2008, when it feared selling out too cheaply for taxpayers.
Shares in Prudential were suspended this morning after the insurance group    said it was in "advanced" talks over a $35.5bn (&pound;23.5bn) takeover    of AIG's Asian business.