A huge movement occurred for life insurance on Sunday, A.I.G. agreed to sell its unit of American Life Insurance to MetLife for an astounding $15.5 billion, $6.8 of which will be in cash. This is the second major transaction in a one week span for the company that is still desperately trying to dig itself out of substantial debt.
Just last week A.I.G. sold American International Assurance to Britain’s Prudential P.K.C. for $35.5 billion. The sales together brought in a combined $51 billion for the struggling company.
For the MetLife move alone, A.I.G. brought in $6.8 billion in cash. The rest will remain in a combination of both common and preferred stock shares, which include the mandatory convertible preferred stock.
A.I.G. has stated that the first 9 billion from the sale will go directly towards the redemption of its preferred shares in Alico, which is held by the Federal Reserve Bank of New York. The rest of the money will be used to lower the New York Fed’s lending commitment to A.I.G.
In the early days, A.I.G. will still own an 8 percent stake in MetLife; however, after the stocks are converted from preferred to common stake it will end up being slightly over 20 percent.
The deal between A.I.G. and MetLife will be finalized by the end of 2010. MetLife is hoping that this monumental move will help launch its stock from 45 cents a share to 55 cents by the end of next year.
Both companies stated that this deal has been in the works for well over a year; however, not all is said and done for the still unsteady A.I.G. Still to be solved is exactly how A.I.G. will repay the remainder of its bailout, which includes the nearly 80 percent currently being held by the government.
Some financial analysts suggest that converting the government’s preferred shares into common stock that can be sold over a period of time (either through direct conversion or through replacement with newly issued shares) is their best bet.
What the future holds for A.I.G. is nearly impossible to say. After undergoing a tremendous liquidity crisis back in September of 2008, the company has had a rather difficult time getting back on its feet; however, hopefully these two large sales will help boost the one-time power company in the right direction.