Speculation mounted last week that the deal was on the rocks after Prudential announced it was trying to renegotiate the price.
The original deal was valued at $35.5 billion but Prudential then lowered its offer to $30.4 billion.
Prudential said late Friday that the deal was off. The collapse of the deal means that AIG may now reconsider its previous plan of selling the company through an IPO. If this happened it would be one of the biggest ever IPOs, coming in at around US$15 billion.
Prudential said it tried to renegotiate, however AIG (AIA's parent company) refused to cut the price, turning down a last-ditch effort by Britain's largest insurer to appease shareholder concerns.
"We listened carefully to shareholders over the price and initiated a renegotiation of the terms with AIG. Unfortunately, it has not been possible to reach agreement," Prudential's chairman, Harvey McGrath, said in a statement.
"We are therefore withdrawing from the transaction."
Moody's Investors Service has affirmed the Aa3 insurance financial strength rating of American International Assurance even through the deal has fallen through.
"The termination of the acquisition by Prudential has removed the integration and execution risks involved in combining two large multi-national corporations. Nonetheless, Moody's maintains a negative outlook on AIA's rating, reflecting our concerns over the disruptions in its franchise and operations in the past few months since the announcement of a possible tie-up with Prudential," Moody's Vice President Sally Yim says.
"There has been some senior management turnover at AIA Group."
"In addition, the future ownership structure of AIA Group is still uncertain. Considering the recent volatile market conditions, it may take some time before the ownership structure becomes clearer," Yim says.
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