AIG sells Alico unit to MetLife for $15.5 billion
Tuesday, March 9, 2010
American International Group announced Monday the sale of one of its major global insurance units to MetLife for $15.5 billion, the latest step in the insurance giant's quest to pay down its massive debt to U.S. taxpayers.
Under the complex agreement, MetLife will pay $6.8 billion in cash and the remainder in a mix of common and preferred stock to buy American Life Insurance Co., or Alico, which operates in more than 50 countries. The cash immediately will go toward paying down loans from the Federal Reserve Bank of New York, and AIG plans to sell the equity stakes over time to further reduce its debt.
The sale, approved by the boards of directors of both companies and expected to close by the end of the year, would allow MetLife to tap a host of new international markets, while helping AIG make a significant dent in paying back its federal loans.
"This sale is an important step toward repaying the government," Harvey Golub, chairman of the AIG board, said of the Alico sale in a statement Monday.
The deal marks the second major divestiture for AIG in a week.
On March 1, the company undertook its largest asset sale since it was bailed out by the government in 2008, agreeing to sell its massive Asia-based life unit, American International Assurance, to Prudential of Britain for $35.5 billion.
AIG said Monday that the sale of two of its crown jewels would put the company on track to generate nearly $51 billion toward reducing its outstanding debt and, according to Golub, "give AIG greater flexibility to move forward with our restructuring and rebuilding efforts, and focus on enhancing the value of our key insurance businesses."
But despite two large asset sales, AIG faces hurdles as it tries to regain stability and repay taxpayers. According to a recent public filing, the insurer owed the New York Fed about $48 billion at the end of 2009. In addition, the Treasury has invested $47 billion in AIG through its Troubled Assets Relief Program.
Even after the sale of Alico and AIA, the insurer would still owe significant sums to the federal government. AIG has plans to shed additional assets, such as its large aircraft-leasing subsidiary, but it has no other units that could generate as much cash as AIA or Alico.
"They've got a long way to go," said Bill Bergman, a Morningstar analyst, who called the Alico deal "a step in the right direction."
Bergman said AIG has benefited from the improving credit and housing markets, and the company has stabilized the flow of insurance premiums that make up its core business. But the continued burden of its federal debt coupled with the soft insurance market, which makes it difficult for companies to raise prices to boost profitability, makes for an uncertain future.
"It's still a challenging time," Bergman said. "They've got to be careful and underwrite good business."
AIG's financial health has taken a positive turn during the past year. The company reported a $8.9 billion loss for the last three months of 2009 and a total loss of $10.9 billion for the year, but that marked a vast improvement over its $99.3 billion loss in 2008.
According to AIG, Alico serves 20 million customers and employs 12,500 people around the world, including in Europe, Asia, the Middle East, Africa and Latin America. Officials at MetLife, which has been eyeing Alico for more than two years, said they were delighted to acquire a firm that gives their company an instantly broader global footprint.
"It's a franchise that one could not build without a significant investment of time and resources over many years," MetLife chief executive C. Robert Henrikson said in a conference call. "I think I can safely say this acquisition establishes MetLife as perhaps the premier global life insurance franchise."
Wall Street viewed the Alico sale positively Monday. MetLife shares closed up $1.98, or 5.1 percent, to $40.90, its highest level in almost six months, while shares of AIG rose $1.02, or 3.6 percent, to close at $29.10.