$35.5bn deal for AIA sparks 11% fall in Prudential shares

Joshua Raymond, Market Strategist at City Index commented: "European Indices gained between 0.5% and 1% in early trade on Monday after strength in commodities on production suspensions from the massive earthquake in Chile helped to push the heavyweight miners higher.

Prudential buys AIA for $35.5bn

The big news story of the day however has been the $35.5bn deal for AIA, the Asian life insurer of AIG, by Prudential. It is a huge deal and has energized traders this morning.

The combined entity, Prudential PLC, would become the number one insurer in key strategic regions in Asia including a 30% market share in Singapore and 29% in China. Prudential shares opened as much as 12% lower after initially being suspended pending confirmation from the company of the deal.

Today's share price fall is to be expected considering the expense of the deal and the subsequent $20bn rights issue to help pay for it.

The acquisition news has not stopped there with Merck announcing that it has secured Millipore for approximately 6bn Euros. Merck will pay $107 a share and the acquisition will mean that revenue from chemicals will rise to 35% from 25%.

Today's Prudential deal to buy AIA, along with Merck's acquisition of Millipore and the recent Cadbury's sale to Kraft has raised optimism that mergers and acquisition activity could continue to grow.

HSBC misses target

HSBC shares are also severely lower after the bank missed profit targets after a 9% rise in bad impairments and a higher than expected technical accounting loss or $6.3bn. This has been a bit of a disappointment on the banks today after both Barclays and Royal Bank of Scotland set such a positive tone with their respective earnings.

Sterling falls on hung parliament fears

We have seen sterling continue to weaken against the Euro and US Dollar as fears of a hung parliament gather pace with reports over the weekend that the Conservative party's lead in the polls has diminished.

The prospect of a hung parliament may significantly damage the government's ability to proactively curb the countries deficit. As a result, we have seen the selling of sterling gather pace today.

Greece bailout hopes

There has been continued chatter in the market regarding the prospects of a 25bn euro bailout with state owned banks buying up Greece bonds. We have seen clients come in to pick up the Euro on Friday last week and this optimism has continued today."