George S. May Business Blog

AIG sells Alico Division to MetLife Inc.

American International Group Inc. said on Monday it has made a deal sell off its American Life Insurance Co. division for $15.5 billion. MetLife Inc. is the second company in two weeks to buy a sizable asset from the cash-strapped AIG. The government-approved deal, will give the company more liquidity to help them repay the billions of bailout dollars still owed to the government.

American Life Insurance Co. has operations either directly or through subsidiaries in Europe, including Britain, Latin America, the Caribbean, the Middle East and Japan. AIA operates primarily in Asia, including China, Singapore, Malaysia, Thailand, Korea, Australia, New Zealand, Vietnam, Indonesia and India.

This deal gives MetLife a greatly increased presence in Japan as well as other coveted markets in Europe, the Middle East, and Latin America, all of which are markets that are expected to grow considerably in the next several years. The American Life Insurance Company, often referred to as Alico, has operations in more than 50 counties, which MetLife itself only services 15 countries currently.

At the end of 2009, AIG was still in the hole to the Federal Reserve Bank of New York to the tune of $130 billion. AIG’s original bailout amount was about fifty billion dollars higher, but of late the company has been taking some strong steps in order to satisfy these obligations.

On March 1, AIG agreed to sell Asia-based life insurer, AIA Group, to Britain’s Prudential PLC for $35.5 billion. The two units, while selling similar products, don’t operate in the same markets in Asia, which made the deal an excellent prospect for the LLC as it hopes to make substantial gains in the large markets filled with rising levels of disposable income and quality of life.

Investors were pleased with the Alico deal, and bid AIG’s shares up 3.6 percent, or $1.02, to $29.10. MetLife shares rose $1.98, or 5.1 percent, to $40.90.

As for the nuts and bolts of the deal, MetLife will pay $6.8 billion in cash for Alico. The rest of the purchase price will be paid in stock and equity units, which are eventually convertible to common stock and preferred securities in time.

AIG will initially hold an 8 percent stake in MetLife, but the stake will reach 14 percent in early 2011 after some MetLife preferred shares are then converted into common shares. AIG’s stake could reach up to 20 percent, after the insurer receives $3 billion in equity units which are then converted.

“Rarely does one come across a deal that has such a strong strategic fit,” MetLife CEO Robert Henrikson said in an interview with The Associated Press.

Henrikson said MetLife has been in the market for various domestic and overseas acquisitions over the past five years. He said he began discussing a possible Alico deal with AIG in December 2008, three months after the government bailout.

AIG and MetLife are both based in New York. Robert H. Benmosche, the former head of MetLife, became AIG’s CEO in August, but Benmosche wasn’t involved in the deal discussions, Henrikson said. All talks were handled by a special committee within AIG.

The Alico deal, while good for MetLife, carries some risk, said Aite Group senior analyst Clark Troy.

“Japan is an aging society and MetLife may face challenges growing revenue,” Troy said. “However, MetLife does have the ways and means and experience to make the deal work, as they will be building on one of their stronger franchises.”

With the latest sale, AIG will be able to slash the outstanding government debt of $129.3 billion by about $51 billion, or 39 percent, down to a trim $78 billion. The cash portion of the Alico and AIA deals will be used immediately to pay down an investment in AIG by the Federal Reserve Bank of New York. The equity portion of the deals will be sold over time to help further repay the debt.

The government will also be selling shares it holds in AIG to recoup some of its investment.

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