The deal for American Life Insurance Co will help MetLife, already the largest life insurer in the United States and Mexico, to diversify revenue by product, distribution and geography.
It comes a week after American International Group Inc agreed to sell its Asian life unit, American International Assurance (AIA), to Britain's Prudential Plc
AIG is raising funds to repay a massive government bailout.
The AIA deal really is an Asia deal. Ours is really a global deal, William Toppeta, president of MetLife's international business, said. It is really about the growth opportunities in a lot of parts of the world and not just about Asia.
MetLife shares rose 5.1 percent to close at $40.90, their highest level in nearly six months, and AIG rose 3.6 percent to close at $29.10, also on the New York Stock Exchange.
MetLife first started eyeing Alico, which sells life, accident and health insurance as well as retirement and wealth management products in 55 countries, in the months before AIG nearly collapsed in September 2008.
The first time that we focused most intensively on Alico would have been in 2008, probably the early part of 2008, Toppeta said. And then, of course, the events of the summer and fall of 2008 sort of overtook everybody.
MetLife said it would pay $6.8 billion in cash and $8.7 billion in equity for Alico, confirming an earlier Reuters report.
With the AIA and Alico deals, AIG plans to repay the Federal Reserve Bank of New York about $31.5 billion in cash, with more expected as it sells Prudential and MetLife stock over time.
The proceeds should help the insurer pay down all of its New York Fed debt, but it will still leave the government holding roughly $47 billion in equity investments, including funds drawn under a $30 billion equity line. The government also has a nearly 80 percent stake in AIG.
To exit from AIG completely, the government is likely to follow a strategy similar to what it has used with Citigroup Inc
It's a step in the right direction -- liquefying its better assets and paying back the taxpayer. But the prospects there are still very uncertain, Morningstar analyst Bill Bergman said.
Thanks to the acquisition of Alico, founded in 1921, MetLife will get a special boost in Japan, the world's second-largest life insurance market, which accounted for 70 percent of Alico's pre-tax operating income in fiscal year.
Alico will also strengthen MetLife's position in Europe and move it into a top five market position in many emerging markets in Central and Eastern Europe, Middle East and Latin America.
MetLife expects the deal to increase its 2011 operating earnings per share by 45 to 55 cents, excluding one-time expenses of 12 cents. Analysts, on average, expected MetLife to post a profit of $4.89 per share in 2011, according to Thomson Reuters I/B/E/S.
MetLife sees annualized post-tax cost savings of $50 million to $75 million.
One analyst said MetLife was overpaying. The transaction values Alico at more than 1.2 times book value, compared with the sector's current multiple of 0.9, a JPMorgan Chase analyst said in a research note.
Early last year, MetLife offered about $11 billion for Alico, but AIG avoided a fire sale after the New York Fed, advised by Morgan Stanley
The equity portion of the price for Alico consists of $3 billion in MetLife common stock, $2.7 billion in contingent convertible preferred stock, and $3 billion of equity units.
The common stock and equivalents would give AIG a 14 percent ownership in MetLife, MetLife CFO William Wheeler said.
The equity units are set to convert into common shares roughly three years after closing, Wheeler said. Taking those into account, AIG's ownership in MetLife would go above 20 percent, sources familiar with the matter said on Sunday.
But Wheeler said he expected AIG to start selling the shares as soon as it could under a lock-up agreement.
I am not sure how much shares they will own at any one time, but I suspect it won't get close to 20 percent, Wheeler said.
AIG's stake comes with voting restrictions and does not give it a right to name anyone to MetLife's board. AIG must vote its shares in proportion to the way the rest of MetLife's outstanding shareholders do, Wheeler said.
MetLife expects to finance the cash portion of the deal with issuances of $3.1 billion in senior debt and $2 billion of common stock, as well as $1.75 billion in 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, Goldman Sachs
(Editing by Lisa Von Ahn, Dave Zimmerman, John Wallace, Gary Hill)