AIG Still Working Out $15 Billion Sale of Alico to MetLife

A tax question holding up American International Group Inc.’s sale of its foreign life insurance unit to MetLife Inc. is expected to be resolved favorably, clearing the way for a roughly $15 billion deal, sources familiar with the matter said Thursday.

Timing on a deal for American Life Insurance Co. (Alico) has not yet been set and final decisions have not been taken, but the parties are trying to reach an agreement by this weekend, one of the sources said.

A deal would come just days after AIG agreed to sell its Asian life unit, American International Assurance (AIA), to Britain’s Prudential Plc for $35.5 billion, the largest insurance deal ever.

It would help the Federal Reserve Bank of New York, which holds a $9 billion preferred interest in Alico, recover a big chunk of its loan to AIG, adding to the billions already expected from the AIA deal.

For MetLife, the largest publicly traded U.S. life insurer, Alico would help expand its presence in international markets.

Alico, founded in 1921 and based in Wilmington, Delaware, sells life insurance and retirement products to 19 million customers in 54 countries.

“It’s going to be a big deal for MetLife, particularly to get the additional penetration into Japan. That’s where Alico is the strongest,” said Clark Troy, a senior analyst at Aite Group.

But Troy also pointed to risks around integrating the two companies that have different cultures.

MetLife sells through many channels, including a large number of independent brokers, while Alico is dominated by a captive agent model, Troy said.

AIG and MetLife declined to comment. The sources declined to be named because these talks are not public.

TAX QUESTION

AIG, which is trying to pay back the U.S. government after being bailed out with $182.3 billion of taxpayer funds, has been in talks for months to sell Alico to MetLife.

An agreement, however, has been delayed in recent weeks because of concerns about potential tax liabilities. Alico, which sells most of its insurance policies outside the United States, does not withhold U.S. taxes on distributions to foreign policy holders.

The parties wanted to make sure this practice was consistent with U.S. tax laws and were seeking a letter from the Internal Revenue Service supporting Alico’s position so that MetLife did not face a tax liability in the future.

MetLife is expected to pay roughly $8 billion in stock and the rest in cash for Alico, sources have said previously.

The deal value is a big jump from the roughly $11 billion that MetLife had offered in early 2009, when AIG was trying to sell the business in a hurry as it tried to quickly pay back taxpayers after its September 2008 bailout.

But the New York Fed gave AIG breathing room when it agreed to swap $25 billion of its debt for equity in Alico and AIA — an aggressive bet that is paying off now.

Under the terms of his contract, AIG Chief Executive Robert Benmosche, a former MetLife chief and current shareholder, cannot be involved in AIG’s discussions to sell Alico to his former employer.

Benmosche played a major role in negotiations in the AIA deal with Prudential.

Benmosche is in Asia, where he and his Prudential counterpart, Tidjane Thiam, are leading a series of ‘town hall’ meetings that aim to allay concerns among staff of both companies after the deal.

MetLife confirmed in February that it was in talks to buy Alico but had not reached a deal.

There is “no certainty” MetLife will reach a deal for the AIG unit, Chief Executive Robert Henrikson said at the time, adding the insurer does not need an acquisition to meet its business objectives.

Management added on the call the company would not sell any current businesses to finance a possible deal, nor would it use capital in an off-shore reinsurance unit toward a deal.

AIG’s shares ended 7.4 percent higher at $26.71 on the New York Stock Exchange, while MetLife shares were 3.7 percent higher at $38.11.

(Reporting by Paritosh Bansal; Editing by Richard Chang, Matthew Lewis and Gunna Dickson)