AIG agrees to sell Alico to MetLife for $15.5B

American International Group Inc. said Monday it will sell its American Life Insurance Co. division for $15.5 billion to MetLife Inc. The government-approved deal, AIG’s second big asset sale in two weeks, will give the insurer more cash to repay the billions of bailout dollars it still owes the government.

The purchase expands MetLife’s presence in Japan and high-growth markets in Europe, the Middle East and Latin America. American Life Insurance, known as Alico, operates in more than 50 countries. MetLife currently offers services in 17 countries.

It also moves AIG closer to repaying taxpayers. As of Dec. 31, the company owed the Treasury and the Federal Reserve Bank of New York nearly $130 billion. AIG’s bailout package was originally worth up to $182.5 billion.

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.

Investors were pleased with the Alico deal, and bid AIG’s shares up 3.6 percent, or 94 cents, to $29.02 in afternoon trading. MetLife shares rose $1.54, or 4 percent, to $40.47.

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

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

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

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.”

MetLife currently has a successful variable annuity business in Japan.

MetLife’s international business grew significantly in 2005 when the company acquired most of Citigroup’s international insurance businesses, adding Japan, Australia and Britain to its portfolio. Before then, MetLife already had operations in South Korea, Chile and in Mexico, where it is the largest life insurer.

Henrikson said he didn’t consider a purchase of AIA Group because “it didn’t fit MetLife’s growth plans.”

AIG has been working for the past year and half to sell assets and streamline operations so it can repay its government debt. Since receiving government bailout funds, AIG has completed 21 unit sales or asset transactions, including the Alico and AIA deals.

As the largest recipient of taxpayer bailout dollars, AIG remains under the supervision of Treasury and the New York Fed. All negotiations around Alico and AIA were monitored actively by representatives from Treasury and the New York Fed, officials from both agencies said.

Each agency has participated in every key call and meeting between directors about the deals, and discussed the available options with AIG’s executives, according to officials familiar with the process. They spoke on condition of anonymity because they were not authorized to publicly discuss the negotiations.

AIG’s next key sale could be Nan Shan, a Taiwanese company, analysts have said.

AIG is also continuing to address funding needs and explore options for restructuring its aircraft leasing unit, International Lease Finance Corp., and its consumer and commercial lending business, American General Finance Inc.

It is also conceivable that AIG might consider sales of its American General Life and American General Life and Accident units, Aite Group’s Troy said.

The insurer is expected to keep Chartis, its larger property and casualty insurance company; two additional Japanese life insurers, and a handful of smaller, U.S.-based companies. They are very unlikely to be sold, according to a Treasury official. He said the after AIA, Alico and Nan Shan, the remaining pieces will likely be retained by “new AIG.”

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 that debt.

Including the latest sale, AIG will be able to slash its government debt by about $51 billion, or 39 percent. Before the sales of AIA and Alico, AIG owed the government $94.76 billion in loans and its outstanding government assistance totaled $129.26 billion.

All the cash and stock AIG received from selling Alico to MetLife will be used to repay the government.

AIG received $25 billion in cash from the AIA sale and another $10.5 billion in stock and equity units. Like in the Alico sale, that stock and equity will eventually be sold to repay the government.

AIG’s outstanding government debt will be around $78.26 billion once the two deals are completed and the stock and equity units in MetLife and Prudential are sold — assuming current market values for the MetLife and Prudential stakes.

Of that $78.26 billion, AIG will owe the government $43.76 billion.

The remaining $34.5 billion in outstanding assistance is tied to the value of investments the government bought from AIG. As those investments pay off or rise in value, the government recoups more money.

Related Topics: American International Group (AIG), Metropolitan Life Insurance Co. (MetLife)