MetLife set to buy AIG's Alico unit: sources

on March 07 2010 10:48 PM

AIG was closing in on a deal on Sunday to sell its foreign life insurance unit to MetLife Inc for about $15.5 billion in cash and stock, leaving it with a substantial minority stake in MetLife, sources familiar with the matter said.

MetLife is expected to pay American International Group about $6.8 billion in cash and about $8.7 billion in equity, which includes convertible preferred, common shares and common equivalent securities, for the unit, American Life Insurance Co (Alico), one of the sources said.

The common stock and securities equivalent to common shares would give AIG about 14 percent ownership in MetLife, while the convertible preferred is expected to be liquidated before it converts, the source said.

With the convertible preferred stock, though, AIG's stake would go above 20 percent, according to the sources.

A deal, which has been approved by both boards, could be announced as soon as Monday, the sources said, declining to be named because it is not yet public.

Alico would help MetLife, the largest publicly traded U.S. life insurer, expand its presence in international markets, especially in Japan.

The unit, founded in 1921 and based in Wilmington, Delaware, sells life insurance and retirement products to 19 million customers in 54 countries.

A deal is expected to close by the end of this year, and MetLife estimates it to be accretive by 45 cents per share to 55 cents per share in 2011, excluding one-time costs, one of the sources said.

The deal would be the second major business sale by AIG in a week and will allow the insurer to repay billions it owes to the U.S. government after a September 2008 rescue, which has since swelled to $182.3 billion.

The insurer agreed to sell its Asian life insurance unit, American International Assurance (AIA), to Britain's Prudential Plc last Monday for $35.5 billion, the largest insurance deal ever.

Deals for AIA and Alico will allow AIG to repay the government around $32 billion in cash when they close, with more expected as the insurer sells Prudential and MetLife stock over time.

AIG, which is nearly 80 percent owned by the U.S. government, declined to comment. MetLife was not immediately available for comment.

METLIFE STAKE

The equity component of the purchase price includes about $3 billion in convertible preferred, and the rest in common stock and temporary securities similar to common shares, the sources said.

AIG will hold below 20 percent of MetLife as a result at closing, a stake that is expected to increase to above 20 percent -- but below 25 percent -- later, after MetLife's shareholders approve the conversion of the temporary securities to common stock, these sources said.

But one of the sources said AIG's actual ownership would never go beyond 14 percent because it cannot convert the convertible preferred stock for several years, and it will end up being liquidated before that.

The stake that AIG will get also carries restrictions on voting, the source said.

The shares will be voted in the same proportion as all other MetLife shares on any matter put to a shareholder vote, the source added.

The number of common stock being given to AIG is fixed and so the precise deal value fluctuates with change in MetLife's share price, the sources said.

The cash component of the consideration is expected to be used to pay down the $9 billion preferred interest that the Federal Reserve Bank of New York holds in the unit, the sources said. The equity will be sold over time to redeem the remaining interest, they said.

LONG NEGOTIATIONS

A sale comes after months of negotiations and became possible after the New York Fed, advised by Morgan Stanley , agreed in March 2009 to swap its debt into equity in special purpose vehicles that AIG created to hold AIA and Alico.

The Fed's aggressive bet has paid off in spades, allowing AIG, which has been advised by Blackstone Group throughout this process, to get much higher values for the two businesses than it was drawing in the months after the bailout.

Early last year, MetLife had offered about $11 billion for the unit, but the price went up in the months after March 2009, as the Fed's move gave AIG more time to sell these businesses.

AIG is being advised by Citigroup Inc and Goldman Sachs , according to several sources.

Credit Suisse served as the lead adviser for MetLife. The insurer was also advised by Barclays Capital , Bank of America Merrill Lynch , Deutsche Bank and HSBC .

Under the terms of his contract, AIG Chief Executive Robert Benmosche, a former MetLife chief and current shareholder, cannot be involved in AIG's discussions to sell Alico to his former employer.

Benmosche, however, played a major role in negotiations in the AIA deal with Prudential.

(Editing by Diane Craft and Muralikumar Anantharaman)

More News from IBT MEDIA