MetLife said on Monday that it would pay AIG $6.8 billion in cash and about $8.7 billion in equity for the American Life Insurance Co (Alico) unit, confirming an earlier Reuters report.
Founded in 1921, Alico sells life, accident and health insurance as well as retirement and wealth management products in more than 50 countries. The deal will help MetLife, already the largest life insurer in the United States and Mexico, to expand globally.
MetLife will get a boost in Japan, the world's second-largest life insurance market. Alico will also strengthen the company's position in Europe and move it into a top five market position in many emerging markets in Central and Eastern Europe, the Middle East and Latin America.
MetLife expects the deal to increase its 2011 operating earnings per share by 45 cents to 55 cents, excluding one-time expenses of 12 cents.
Still, such a large deal comes with its share of execution and other risks, said Clark Troy, a senior analyst at Aite Group.
Alico's strength in Japan also ties MetLife's fortunes to an aging society with a huge public debt overhang, Troy said.
If (Japan) falters or slips back into deflation, MetLife might face challenges growing revenue, Troy said in an e-mail late Sunday, before the deal was announced.
The deal comes after AIG agreed to sell its Asian life unit, American International Assurance (AIA), to Britain's Prudential for $35.5 billion in the largest insurance sector deal ever.
The AIA and Alico deals will allow AIG to repay the U.S. government about $31.5 billion in cash after a $182.3 billion taxpayer-funded rescue, with more expected as the insurer sells Prudential and MetLife securities over time.
AIG will use the $6.8 billion in cash from the Alico deal to redeem part of the Federal Reserve Bank of New York's $9 billion preferred interest in a special purpose vehicle that holds the unit.
The equity security portion of the price consists of 78.2 million shares of MetLife common stock valued at $3 billion, 6.9 million shares of contingent convertible preferred stock valued at $2.7 billion and 40 million equity units with an aggregate stated value of $3 billion.
The common stock would give AIG about 14 percent ownership in MetLife, while the convertible preferred is expected to be liquidated before it converts, a source familiar with the situation told Reuters on Sunday.
With the convertible preferred stock, though, AIG's stake would go above 20 percent, several sources said.
MetLife expects to finance the cash portion of the deal with issuances of senior debt and common stock as well as cash on hand.
Both boards have approved the transaction, which the companies expect to close by the end of 2010.
AIG is being advised by Citigroup Inc
Shares of AIG were up 2.2 percent at $28.70 in premarket trading, while MetLife gained 1.3 percent to $39.43.
(Reporting by Paritosh Bansal; Editing by Lisa Von Ahn)