AIG's American Life Insurance Company (Alico) will restructure its western European businesses in order to generate cost savings, according to an internal document obtained by Reuters.

The letter -- dated June 25 and signed by Alico Chairman and Chief Executive Rodney Martin -- says Alico will merge its continental and western European business with that of its UK and Irish business to form one new entity.

The new division will report to Marc Sevestre, currently head of the continental and western European business of Alico.

Over the next few weeks, a work group ... will develop a consolidation plan as well as a broader western European strategy and identify synergies between our western European operations, the letter said.

The work group will include representatives from the CWE (continental and western Europe) and UKI (UK and Ireland) regions and from key home office functions.

Earlier this week, the U.S. government agreed to accept $25 billion of preferred stock in AIG's Alico and American International Assurance Co Ltd (AIA) businesses.

The agreement will reduce AIG's debt of about $40 billion under a Federal Reserve Bank of New York credit facility, but it will still be a while before taxpayers get any cash back for their bailout of the insurer.

Since its near-collapse last September, U.S. taxpayers have committed up to about $180 billion to AIG's rescue.

AIG also said this week's agreement with the government positions AIA and Alico for initial public offerings, depending on market conditions.

(Reporting by Sudip Kar-Gupta; editing by John Stonestreet)