Prudential shares leapt by 6 per cent yesterday morning as investors started to bet its ambitious $35.3bn acquisition of AIA would unravel. Given the decline in markets since the deal was announced three months ago, Prudential now faces the embarrassment of having to reduce the price it has offered if it is to stand a chance of the deal still going ahead.

How low does it need to go? Prudential trades on about 1 times embedded value. Assume a 30 per cent premium, less than the frothy multiples attached to Chinese insurers but adequately reflecting AIA's exposure to more buoyant Asian markets. That compares with the 1.6 times embedded value multiple Prudential offered in March, since when insurance sector shares have slumped by more than 10 per cent. Based on AIA's embedded value of $22bn, that would give a more palatable price tag of about $29bn.

Such a price would negate the need for the expensive hybrid debt Prudential was forced to put on the table to appease regulators. A lower price should also make the deal earnings accretive sooner than the current 2013-2014 time frame. That may well be enough to swing some of Prudential's doubting voters. However, a lower price would not mitigate integration risks, which still weigh heavily on investors' minds.