AIG raises $37 billion from Alico sale, IPO
Monday, November 1, 2010; 7:41 PM
In its ongoing effort to repay taxpayers, bailed-out insurance giant American International Group in recent days has raised nearly $37 billion through the sale of one of its premier subsidiaries and the initial public offering of another.
AIG announced Monday that it had closed on the sale of one of its crown jewels, American Life Insurance Co., or Alico, which operates in more than 50 countries. MetLife purchased the unit for about $16.2 billion, including $7.2 billion in cash and the remainder in MetLife securities.
The deal comes on the heels of AIG's successful public offering of Asian-based AIA, which raised more than $20 billion. AIA's stock soared more than17 percent on its first day of trading last week in Hong Kong.
AIG said Monday that the Alico and AIA transactions combined raised about $36.71 billion, of which $27.71 billion were cash proceeds. Those funds will be used to repay emergency loans from the Federal Reserve Bank of New York, which stepped in to rescue AIG in September 2008 as it teetered on the edge of bankruptcy. The remaining balance of those loans is about $20 billion.
"We promised the American taxpayers we would repay them and the initial public offering of AIA last week and the completion of the Alico transaction move us closer to delivering on our promise," AIG chief executive Robert H. Benmosche said in a statement.
After AIG satisfies its debt to the Fed, it must repay the Treasury Department's nearly $50 billion investment in the company.
To do that, Treasury plans to swap the preferred shares that it holds in AIG for about 1.7 billion shares of common stock, leaving the federal government with a temporary 92.1 percent ownership stake, up from its current stake of 79.8 percent.
Treasury expects to sell those shares to investors over time, which means AIG's stock price ultimately will determine how quickly the government can pull out of the company and how much of the taxpayer investment it can recoup. If the stock performs poorly, taxpayers would be on the hook. If the stock flourishes, taxpayers would reap significant profit.
Treasury said Monday that based on the Oct. 29 closing price of AIG, the number of common shares it plans to own soon would be worth about $69.5 billion. "This amount significantly exceeds Treasury's current $47.5 billion cash investment in AIG," the agency said in a statement Monday.
Government officials and AIG executives expect the company to complete its restructuring by the end of the first quarter of 2011. It undoubtedly will emerge as a much smaller company than the behemoth it was before the financial crisis. It also will operate primarily as an insurance company once again, rather than depending on the profits of units such as AIG Financial Products, whose troubled derivatives contracts nearly drove its parent company into the ground, prompting the massive government bailout.