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AIG Unit May Be Sold to MetLife

Source: NY Times


Posted on 20 Jan 2010

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MetLife, where Robert H. Benmosche made his mark as an insurance executive, has emerged as the lead bidder for a major subsidiary of the American International Group, where Mr. Benmosche is now chief executive. The deal, if it goes through, would help pay off $9 billion of AIG’s rescue debt to the government, and possibly more, depending on the price. Attempts to sell the unit, considered one of the insurer's most valuable properties, have faltered for more than a year because of what AIG called fire-sale bids during the financial crisis.

Under the terms now being discussed, MetLife would pay about $14 billion to $15 billion for the AIG subsidiary, which has an attractive foothold in fast-growing Asian markets, according to people briefed on the negotiations. That price suggests a handsome premium, although insurance company values can be difficult to judge, and prices have gyrated in the last two years.

Separately, the chairman of the Federal Reserve Board called on Tuesday for a federal audit of the central bank’s role in AIG’s bailout, hoping to quell persistent questions and criticism.

When he took over AIG last August, Mr. Benmosche signed a commitment not to exert undue influence on transactions with his former company. At the time he joined AIG he held 500,000 shares of MetLife stock, with options for 2.1 million more shares. His AIG compensation package is intended to reward him if the company’s stock price rises consistently over a period of time. Its stock rose slightly on Tuesday, on word of the possible asset sale.

An AIG spokesman, Mark Herr, said the company would not comment on the talks.

A MetLife spokesman, John Calagna, said it was the company’s policy not to comment on what he called “rumors or speculation.” He added, however, “MetLife does not need to enter into any M.& A. transaction to meet its business objectives, and, as we’ve previously stated, our philosophy regarding M.& A. activity is that any deal MetLife pursues would be strategically important and financially attractive to our shareholders.”

MetLife is one of just a small number of insurance companies with the resources for an acquisition of this scale. It took advantage of a special federal program to tap the capital markets in 2008, but did not borrow from the Treasury’s Troubled Asset Relief Program, and said it passed the government’s “capital assessment exercise,” known as the stress test.

AIG has already arranged to give the Federal Reserve Bank of New York the first $9 billion it receives from any sale of the subsidiary, the American Life Insurance Company, known as Alico. Those funds are to redeem $9 billion worth of preferred stock now held in a special-purpose vehicle for the New York Fed.

Any additional proceeds from the sale of Alico would go toward paying down part of a separate, $35 billion credit facility from the New York Fed — the remains of its original bailout loan to AIG in September 2008.

The New York Fed would still have exposure to AIG through two funds, Maiden Lane II and Maiden Lane III, which it created to help the insurer unwind about $50 billion worth of soured investments. And it has been promised the first $16 billion from the sale of another of AIG’s big Asian life insurance companies, called AIA., on the Hong Kong stock exchange later this year.

Even now, any deal between AIG. and MetLife is probably at least two to three weeks away, and could still fall through, according to the people briefed on the negotiations. MetLife has made offers for Alico before and been rebuffed.

People who follow the insurance industry said that on the basis of numbers alone, MetLife’s offer was strong. American life insurance companies typically change hands at about 1.4 times their book value, according to Douglas J. Elliott, a fellow at the Brookings Institution and a former investment banker who specialized in insurance companies.

Alico’s book value at the end of 2008 was a little less than $4 billion, according to a regulatory filing with its home state, Delaware. That suggests a bidder might try to get away with offering just $5.6 billion.

Mr. Elliott called the $14 billion to $15 billion range “a very high multiple.”

“But these are international operations, and they have footholds in potentially some quite fast-growing parts of the world,” he said. “The emerging markets, like China and India, are seen as potentially huge, profitable markets.”


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