After several impediments in the way of disposing American International Group Inc.’s (AIG) Nan Shan unit in Taiwan, the company has finally decided on Ruentex Group, cement-to-supermarkets conglomerate, according to Reuters and Taiwan newspapers. While the exact price of the deal remains undisclosed, it is expected to range between $2.15 and $2.50 billion. Moreover, an affirmation from the company is still awaited.
Last month, AIG saw some light at the end of the tunnel, with handful of Taiwan bidders having revived interest in the unit. The bidders for Nan Shan Life Insurance included Cathay Financial Holding Co., Chinatrust Financial Holding Co., Ruentex Group and Fubon Financial Holding Co.
Besides, a consortium of investors was being built to bid for Nan Shan. This consortium comprised of Primus Financial Holdings Ltd., Goldsun Development & Construction Co. and Transasia Airways Corp. These bids were also in the range of $2.2 billion to $2.5 billion.
The Failed Bid Story
This is not the first attempt made by AIG to vend off its Nan Shan unit, a decision that was taken in October 2009. Previously in June 2010, the company made certain modifications to comply with China’s government policies, in an attempt to accelerate the divestment of its Nan Shan unit rolling for about $2.2 billion to a Hong Kong-led consortium. However, the parties to contract still awaited the government’s sanction on the deal.
The delay on the deal persisted ever since with no news from the regulatory authorities end. Besides, Taiwan’s Investment Commission, one to have the final say on the deal, had rejected the sale proposal of Nan Shan, in August 2010, to the interested parties, including Primus Financial, Fubon Financial and battery maker, China Strategic, thereby further delaying the sell off.
Nevertheless, AIG officials recently entered into negotiations with these parties once again in order to materialize the deal at the earliest.
Despite the sound fundamentals of Nan Shan, which enjoys the third largest position as per market share in the Chinese insurance market with more than 4 million policy holders, regulatory authorities overall appeared to be concerned about vending Nan Shan to Primus and China Strategic.
Their apprehension was based on both the acquiring companies’ inadequate experience to take over such a high profile business, initiating scepticism on their efficiency. These inhibitions appear to have delayed the proposed deal.
Approaching the Finishing Line
Given the steadfastness of AIG and the fresh bidding for Nan Shan at a fair price, it appears that the company may be able to seal a deal within its targeted time period of a couple of months. Concurrent with its third quarter earnings release, AIG had intimated its intention of disposing of Nan Shan by the end of 2011.
AIG has been working for the past several quarters to sell its unnecessary businesses in an effort to repay the bailout money. In the last couple of months, the company completed the successful IPO of AIG’s AIA Group Ltd. while also disposing of other assets such as ALICO to MetLife Inc. (MET), Japan-based AIG Star and AIG Edison to Prudential Financial Inc. (PRU) and AGF to Fortress Investment Group LLC (FIG). Recently, AIG also announced its intention to vend its rail-car leasing wing, AIG Rail Service Inc.
Overall, we believe that given the consideration that AIG has been working vigorously to attain liberation from the US government and to eliminate redundant operations in order to concentrate on its core global life and property-casualty insurance businesses, the company should finally be able to re-establish its capital and market position. The implementation of the recapitalization plan has raised some optimism as well by offering AIG the option to raise money from the open market.
Moreover, given the current buoyancy in the stock price at around $60, we believe this could prove to be a much rewarding transaction for public investors. Further, the with disposition of redundant assets, the Nan Shan deal bidding over $2 billion, timely repayment of the line of credit to the US Federal Reserve, focus on core operations and the liquidity support from the US government, all offer potential growth prospects for AIG.
On Tuesday, the shares of AIG closed at $59.04, up 2.9%, on the New York Stock Exchange.
