British insurance giant

Prudential

(PUK) - Get Report

said Monday it has agreed to buy

American General

(AGC) - Get Report

in an all-stock deal worth $26.5 billion. The deal would create the world's sixth-largest insurance group.

American General stockholders will get 3.6622 Prudential shares for each of their shares, placing a value of $49.52 on each American General share. It closed at $38.25 on Friday. Prudential shareholders will own about 50.5% of the merged entity, and American General holders will own about 49.5%.

In European trading, American General was up on the deal, but Prudential fell to a two-year low, implying investors thing it's paying too much for the American company.

Pre-tax cost savings are expected to be $130 million annually by the end of 2002 at an estimated one-time cost of less than one year's worth of savings, according to Prudential. The merger is still subject to shareholder approval and regulatory consent, but is expected to close in the third quarter of 2001.

Prudential will keep its primary listing on the

London Stock Exchange

with American Depositary Receipts listed on the

New York Stock Exchange.