The transaction will take the form of an acquisition of both Prudential and AIA by a new company called New Prudential.
The new company will assume the name Prudential plc, be headquartered and incorporated in the UK, and traded on the main market of the London Stock Exchange with shares also traded on the New York Stock Exchange.
Prudential says it intends after completion to seek a dual primary-listing on the Hong Kong Stock Exchange.
The existing board of Prudential will become the board of New Prudential. AIG will receive total consideration of £23.5bn, comprising £16.5bn in cash and the remainder in New Prudential shares and other securities.
Prudential plans to raise £14bn through a rights issue from investors.
In a stock market alert earlier this morning, Prudential said it had suspended trading on the stock exchange while merger talks continued.
Resolution also made a stock exchange announcement today, dismissing press speculation it is looking to swoop on Prudential’s UK business.
Prudential chief executive Tidjane Thiam says: “This transaction is hugely exciting and a one-off opportunity to transform the group.
“We believe that the combination of Prudential and AIA will create a unique life insurance business with a common set of customer-focused values and heritage.
“Asia has been very clearly a major driver of value for Prudential for several years and in 2009 it accounted for 44 per cent of new business profit post-tax.
“The combined group would have 60 per cent of 2009 new business profit coming from Asia and puts us in a strong leadership position in all the critical growth markets in the region.
“Aside from this transaction, it is our intent in due course to seek a dual primary-listing on the Hong Kong Stock Exchange to enable our customers and investor base to share in this value creating opportunity. The headquarters of the combined group will remain in London.”
Clive Cowdery’s consolidation vehicle Resolution had been tipped to bid for Prudential’s UK arm, if the insurer seeks to dispose of it after the Asian deal.
Resolution acquired Friends Provident in August last year, but says it is not in talks over Prudential’s UK business.
Resolution says: “Resolution Limited notes the recent press speculation regarding Prudential plc’s potential acquisition of AIA and a possible subsequent disposal of its UK life assurance operations to Resolution.
“Resolution confirms that it is not in discussions with Prudential regarding the acquisition of its UK life assurance operations.”