Metlife Buys AIG’s Alico for $15.5 billion

AIG will sell its American Life Insurance Company (Alico) to Metlife for $15.5 billion in cash and equity. Alico sells health, life, and other types of consumer and business insurance in more than 50 countries. Alico’s sale comes one week after AIG agreed to sell Asian life insurance company AIA to Prudential. Bloomberg reports:

MetLife plans to sell $2 billion in common stock and $3.1 billion of 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, MetLife said

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 units including a U.S. auto insurer, an Israeli mortgage guarantor and a Canadian life business to help repay loans in its $182.3 billion bailout.

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.

Alico has more than 20 million customers and 12,500 employees, AIG said today. The unit posted about $2.2 billion in pretax operating income last year, a 16 percent increase from $1.9 billion in 2008, MetLife said in a slide presentation. The business had $89 billion in assets under management as of the end of 2008. MetLife said it expects to retain “almost all” of Alico’s employees.

The Wall Street Journal says the purchase numbers look promising for Metlife–and Metlife investors:

As analysts start digging into the numbers, they like what they see.

For one, the earnings impact could end up bigger, and more positive, than previously expected. Alico is set to boost MetLife’s earnings by about 10% and possibly higher, Sterne Agee’s John Nadel estimates, which is more than twice what the firm gauges had been expectations in the 4%-7% range.

This isn’t about cost savings either, Nadel writes. Savings are looking minimal at about $50 million to $75 million compared to integration costs as high as $350 million over the next 30 months.

Lots of other potential plusses come out of this morning’s MetLife call: MetLife execs say that Alico has only $200 million in financial institutions’ hybrid securities and “very little” exposure to Italian, Irish and Spanish debt, widely viewed as possible crises following Greece’s sovereign debt crisis. MetLife execs say that Alico has $1.2 billion in Greek sovereign debt, a relief to those who had pegged it higher. Together, these comments appear to put a limit on how much damage MetLife see following the next big crisis.

As for AIG, the Alico sale makes its debt burden smaller, which in turn reduces makes taxpayers’ AIG bailout burden. Keep spinning ’em off, AIG.

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Written by Drea Knufken

Drea Knufken

Currently, I create and execute content- and PR strategies for clients, including thought leadership and messaging. I also ghostwrite and produce press releases, white papers, case studies and other collateral.