AIG’s $15.5 Billion Deal with MetLife
Another big selloff for America’s problem child
On Monday, American International Group, Inc. (AIG) publicly announced its intentions to sell its American Life Insurance Co. unit to MetLife Inc. The deal that is valued at $15.5 billion in cash and stock marks embattled AIG’s second large sale of an international unit within one week.
AIG reports that the sale of the unit, known as Alico, to MetLife will consist of $6.8 billion in cash with the remainder of the purchase being derived from approximately $8.7 billion in MetLife equity securities (subject to closing adjustments) that will make AIG the company’s second largest shareholder with a stake valued at more than 20%.
The deal is considered by many to be a significant step by the government-controlled company to pay back the nearly $132 billion in loans that it borrowed from the federal government to avoid financial disaster, beginning in 2008.
“This sale is an important step toward repaying the government,” Harvey Golub, chairman of AIG, said in a statement. “Both sales give AIG greater flexibility to move forward with our restructuring and rebuilding efforts, and focus on enhancing the value of our key insurance businesses.”
The MetLife deal comes a week after AIG’s announced plan to sell American Insurance Assurance Ltd (AIA), its Asian life insurance business, to Britain-based Prudential PLC for $35.5 billion.
According to AIG, it expects that the two deals will generate nearly $50.7 billion in revenue that will be used to pay back $31.5 billion to the New York Reserve Bank and another $19.2 billion in securities that will be sold over to pay back the U.S. government.
The acquisition has been approved by both company’s boards and now awaits regulatory approval in the U.S. and overseas. AIG currently expects the deal to be closed by the end of 2010 and to be mutually productive for both companies, because AIG will hopefully cut its debt while MetLife will have the opportunity to grow internationally with a primary focus in Japan.
MetLife expects the deal to increase 2011 operating earnings per share by approximately 45 cents to 55 cents a share. The cash portion of the purchase price is also expected to be financed by issuing senior debt, common stock as well as cash on hand.
While the deal may help AIG pay off its debt to the public, analysts are also aware that the company will be working from here on out without its “crown jewels,” and without the substantial revenues generated by the two units, AIG will be forced to find new ways to increase business growth significantly in order to stay afloat in its growing debts.