INSURANCE giant Prudential's planned £18.1bn bid for American General has collapsed.

The company, which launched the takeover in March, said it had agreed to terminate the deal.

The move follows a counter offer for the Houston-based financial services firm from American International Group (AIG)

Prudential will be paid a termination fee of £419m by American General.

A spokeswoman for Prudential said the group was "disappointed" but that there would be no knee-jerk reaction.

"It was a good deal but it was about positioning the group three, four, five years down the line," she said.

"We have strong businesses in three regions of the world (UK, US and Asia) and we will carry on.

"There are other fish in the ocean but there will be no knee-jerk reaction."

AIG signalled its interest in American General at the beginning of April as it attempted to cash in on investors' unhappiness with the Pru's move.

Prudential's share price tumbled after its offer was announced, falling 14 per cent to 772p on the day it told the market about the deal.

Its original bid was pushed down to as low as 42 US dollars per share, valuing American General at a lower £14.6bn, as Prudential's share price fell.

AIG said its "definitive agreement" with American General would see the group's shareholders receive 46 dollars per share, valuing its prey at 23 billion US dollars (£16.2bn).

American General's chairman and chief executive Robert Devlin said he was "excited" to be joining AIG.

He added: "This transaction represents an outstanding fit for both companies."

l Insurance giant Royal & Sun Alliance has received several approaches for its life assurance business.

The news comes following speculation that both GE Capital, the financial services arm of US group General Electric, and insurance group Aegon UK had expressed an interest in the division.