To pay $6.8 bn in cash and $8.7 billion in equity securities.
American International Group Inc (AIG) agreed to sell a division to MetLife Inc for $15.5 billion in the bailed-out company’s second divestiture of a non-US life insurance unit this month.
MetLife will pay $6.8 billion in cash and $8.7 billion in equity securities for American Life Insurance Co, the buyer said today in a statement.
“This is a sizeable transaction,” Robert Haines, an analyst at CreditSights Inc in New York, said in an interview before the deal was announced. “It demonstrates they’re making some tangible progress on their plan to divest assets.”
AIG announced on March 1 that it would sell AIA Group to Prudential Plc for $35.5 billion. Both the deals this month exceed the sum of more than 20 earlier asset sales announced by New York-based AIG since its September 2008 bailout.
AIG has said that about $9 billion from a sale of Alico would go toward repaying Federal Reserve assistance. AIG previously struck deals to sell a US auto insurer, an Israeli mortgage guarantor and a Canadian life business to help repay loans in its $182.3-billion bailout. Alico operates in more than 50 countries including Japan and parts of Europe, Latin America, the Caribbean and the Middle East.
Selling stock, debt
MetLife plans to sell common stock and senior debt to help finance the cash portion of the deal, the company said. It will also pay AIG with 78.2 million shares of its common stock, which New York-based MetLife values at about $3 billion, the company said. The balance of the equity portion will be paid in $2.7 billion of contingent convertible preferred stock and $3 billion of equity units.
AIG paid down a Federal Reserve credit line by $25 billion in December when it handed over stakes in Alico and AIA. That sum includes $16 billion that AIG promised to the Fed from an eventual AIA sale and $9 billion from an Alico divestiture. The insurer still owed the Fed about $25 billion as of the end of February on the five-year credit line, and more than $40 billion to the Treasury.
The Fed vehicle that controls Alico will sell MetLife securities “over time” after the expiration of minimum holding periods, AIG said in a statement. The Fed will also be entitled to proceeds from the eventual sale of $10.5 billion in securities acquired from Prudential, AIG had said last week. AIG advanced 1.7 per cent to $28.55 in early trading in New York.
Adding to earnings
The acquisition will add 45 cents to 55 cents a share to MetLife’s 2011 operating earnings, the company said. MetLife expects transition costs and other expenses of 12 cents a share, which won’t be deducted from operating earnings, the insurer said. The Alico sale is expected to be completed by the end of 2010, AIG said.
Alico has more than 20 million customers and 12,500 employees and posted $1.3 billion in after-tax operating income in 2008, AIG said today. The business had $89 billion in assets under management as of the end of 2008.
“MetLife is delivering on its strategy to accelerate international expansion as a powerful growth engine for the company,” Chief Executive Officer Robert Henrikson, 62, said in the statement.
Henrikson shunned US bailout cash and raised capital from debt and equity investors to weather the stock and bond slumps in 2008 and early 2009. The company had its first quarterly profit in a year in the three months ended December 31, posting net income of $320 million as private equity and hedge fund holdings recovered.
Non-US operations
MetLife expanded the revenue it gets from outside the US after buying Travelers Life & Annuity from Citigroup Inc. in 2005. The deal, which Henrikson worked on as MetLife’s president, gave the insurer an entrance into Japan, Australia and UK. The company recorded about $5.5 billion of operating revenue from outside US in 2009, accounting for about 11 per cent of its total.
MetLife acquired Odonto A Saúde Empresarial in 2008 to add dental insurance in Brazil, and the company had said in November 2008 that it planned to increase its sales force in India by 30,000 agents. Sales in Mexico and Chile account for the biggest share of MetLife’s revenue in Latin America.
“Our performance in international is superb,” Henrikson said at a December meeting in New York with analysts and investors. “Our opportunities are immense.”
MetLife used hedges to help post a $3.2 billion profit in 2008 before reporting losses in each of the first three quarters last year. Prudential Financial Inc, the second-biggest US life insurer, lost money in 2008 and returned to profit last year.
