June 1 (Reuters) – Prudential (PRU.L) has faced yet another embarassing setback in its bid to buy U.S. giant AIG’s Asian arm, leaving the deal on the verge of collapse and raising questions over the future of Britain’s largest insurer. Bailed-out AIG (AIG.N) on Tuesday snubbed a revised bid that would have slashed $5 billion off the original $35.5 billion offer — a last-ditch effort by Pru to win over disgruntled shareholders. [ID:nTOE64U07Y]

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Based on conversations with analysts, bankers, shareholders and industry figures, this is a look at what may happen next.

PRUDENTIAL WITHDRAWS FROM DEAL LIKELIHOOD: High.

An “honourable withdrawal”, drawing the line under Pru’s Asian escapade, is widely seen as the most likely outcome, after AIG in a terse statement rebuffed a lower bid for American International Assurance.

Prudential — after suffering its first major setback with an unprecedented regulatory delay to the deal last month — was already facing growing shareholder discontent.

A withdrawal as early as Tuesday, after Pru management meets top investors, would avoid taking the deal to a vote at a general meeting scheduled for June 7. Pru would need 75 percent of voting stock to be cast in favour to push ahead, and it was increasingly unclear it would have gathered that support.

If it does withdraw — scrapping what would have been the sector’s largest ever takeover — Pru will have to pay AIG a hefty break fee of 153 million pounds ($223.3 million).

PRUDENTIAL PURSUES DEAL, FACES DOWN SHAREHOLDERS LIKELIHOOD: Improbable.

The alternative option for Prudential management is to push ahead with plan A — the takeover offer for AIA and an audacious plan to become Asia’s biggest foreign-owned insurer.

This is widely seen as implausible. AIG’s management is unlikely to return to the negotiating table and accept even a face-saving discount for Pru, after the earlier statement sticking to the original terms and conditions.

And the Pru has little motivation to take the $35.5 billion offer to shareholders next week and face what would likely be an unprecedented defeat for a British blue chip at the hands of investors.

And life after the Asian adventure?

PRUDENTIAL PURSUES FUTURE INDEPENDENTLY

LIKELIHOOD: High.

Prudential, faced with volatile markets and ruffled shareholders, will most likely return to its previous, independent strategy, emphasising to investors high levels of growth seen in first-quarter results, when when sales rose 26 percent to a record 807 million pounds.

Chief Executive Tidjane Thiam, a high flyer who replaced veteran Mark Tucker last year, has emerged bruised and vulnerable from the battle for AIG’s Asian unit, his reputation for smooth charisma badly damaged after failing to win over shareholders and clashing with several large investors.

But there are few likely successors within the company, making it likely that Thiam, who joined from rival Aviva (AV.L), will remain in the top spot for the foreseaable future.

PRUDENTIAL AS BREAK-UP TARKGET

LIKELIHOOD: Low.

Talk of breaking up Prudential into its U.S., UK and Asian arms has been in the market for several years. But with several major rivals dealt body blows by the credit crunch — not least AIG — this scenario is now seen as unlikely.

Analysts emphasise hedge funds and some banks will continue to pursue this option. But hostile bids this complex — reminiscent of the joint three-way takeover of Dutch bank ABN Amro — are virtually unheard of in insurance. (Reporting by Clara Ferreira-Marques; Editing by Michael Shields)