AIG Agrees to Sell Alico to MetLife for $15.5 Billion

American International Group Inc. agreed to sell a division to MetLife Inc. for $15.5 billion in the bailed-out company’s second divestiture of a non-U.S. 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.

AIG, led by Chief Executive Officer Robert Benmosche, announced on March 1 that it would sell AIA Group Ltd. to Prudential Plc for $35.5 billion, including $25 billion in cash. 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 pulled off two massive asset sales marking major milestones on its road to recovery,” said David Havens, managing director in credit trading at Nomura Securities International Inc. in New York. “A year ago, AIG getting more than $50 billion for AIA and Alico, mostly in cash, seemed unthinkable.”

MetLife advanced $1.49, or 3.8 percent, to $40.41 at 9:50 a.m. in New York Stock Exchange composite trading and has gained about 15 percent this year. AIG rose $1.42, or 5.1 percent, to $29.50, paring its decline for the year to less than 2 percent.

Alico operates in more than 50 countries including Japan and parts of Europe, Latin America, the Caribbean and the Middle East. The acquisition will add 45 cents to 55 cents a share to MetLife’s 2011 operating earnings, the company said.

Integration Expenses

MetLife expects transition costs and other expenses of 12 cents a share, which won’t be deducted from operating earnings, the insurer said. Post-tax integration expenses of $300 million to $350 million will be incurred over two and a half years, MetLife said. The Alico sale is expected to be completed by the end of 2010, AIG said.

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.

Selling Stock, Debt

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 securities obtained in the deal “over time” after the expiration of minimum holding periods, AIG said in a statement. About half the stake could be sold nine months after the deal is completed, MetLife Chief Financial Officer William Wheeler said in a conference call today.

AIG’s stake in MetLife may be about 14 percent in 2011 and could rise to as much as 20 percent with the conversion of some of the equity to common shares, Wheeler said. He said he doesn’t expect the holding to reach 20 percent because AIG may cut its holdings. The Fed also will be entitled to proceeds from the eventual sale of $10.5 billion in securities to be acquired from Prudential, AIG said last week.

20 Million Customers

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.

“This acquisition establishes MetLife as perhaps the premier life insurance franchise,” Chief Executive Officer Robert Henrikson, 62, said in the statement. “Clearly given Alico’s established positions, it’s a franchise that one could not build without a significant investment of time and resources over many years.”

Profit Rebound

Henrikson shunned U.S. 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 Dec. 31, posting net income of $320 million as private equity and hedge fund holdings recovered.

MetLife expanded the revenue it gets from outside the U.S. after buying Travelers Life & Annuity from Citigroup Inc. in 2005 for about $11.7 billion. That deal, which Henrikson worked on as MetLife’s president, gave the insurer an entrance into Japan, Australia and the U.K. The company recorded about $5.5 billion of operating revenue from outside the U.S. in 2009, accounting for about 11 percent of its total.

MetLife said it would be indemnified for losses tied to the Premier Access Bond offered by Alico in the U.K. AIG halted withdrawals in 2008 as clients abandoned the firm amid its U.S. rescue. The deal also includes loss-sharing agreements on a portfolio of about $1 billion tied to commercial mortgages in Japan, MetLife said.

AIG, which turned over a stake of almost 80 percent to the U.S. as part of its bailout, is getting advice from Blackstone Group LP, Citigroup Inc., and Goldman Sachs Group Inc. on the transaction.

Credit Suisse Group AG served as MetLife’s principal financial adviser. The insurer also had help from Barclays Plc, Bank of America Corp, Deutsche Bank AG and HSBC Holdings Plc. Dewey & LeBoeuf was legal adviser to MetLife. The Federal Reserve Bank of New York is using Morgan Stanley.

Board Committee

AIG’s Benmosche, 65, previously led MetLife. Benmosche was prohibited from participating in negotiations with MetLife, AIG said in guidelines in August designed to prevent potential conflicts of interest. AIG said a committee of its board would name an executive officer or senior manager as the chief transaction officer to handle such talks.

AIG may remain one of the largest U.S. commercial insurers after divesting its two largest non-U.S. life insurance divisions and scaling back operations at its plane-leasing unit, consumer lender and derivatives business. It is among top sellers of workers’ compensation, professional liability and property coverage, competing with Travelers Cos. and Warren Buffett’s Berkshire Hathaway Inc.

Before Alico, the company secured deals to raise more than $47 billion since its 2008 bailout, including the $35.5 billion sale of AIA. The company has said it plans to close its derivatives unit by year-end, while keeping $300 billion to $400 billion in trades AIG expects to be profitable.