According to the Financial Times, American International Group Inc. (AIG) and Prudential Plc. (PUK) are discussing a restructuring of their $35.5 billion deal for AIG’s Asian life insurance unit, American International Assurance (“AIA”).
This revision could lead to a $2 billion cut in the cash consideration. The discussion takes place following U.K. regulators’ concerns over the capital position of Prudential, post acquisition.
As per the original deal announced in early March this year, AIG agreed to sell AIA to Prudential for about $35.5 billion. This included approximately $25 billion in cash, $8.5 billion in face value of equity and equity-linked securities, and $2.0 billion in face value of preferred stock of Prudential, subject to closing adjustments. The cash proceeds would be used to repay the Federal Reserve Bank of New York, which rescued AIG from collapsing in 2008.
However, last week, Prudential postponed its $21 billion rights issue offering for financing the AIA deal over concerns of its capital position by the regulators, which fell short of their requirements.
Prudential initially planned for a $5 billion senior debt offering for this deal. However, following the regulators’ concern, the company is considering a restructuring of the debt offering. The company is now planning to issue a part of this amount as hybrid securities, which would be considered for calculating its capital base.
The restructuring of the AIA deal that AIG and Prudential are now considering would end in AIG receiving around $2 billion less in cash and a subscription for the hybrid securities of Prudential.
AIG, which received federal support worth $182.5 billion, has been trying to sell assets and streamline its operations for the past several quarters in an effort to repay the bailout money. Besides AIA, AIG will sell its American Life Insurance Co. (“ALICO”) unit for about $15.5 billion to MetLife Inc. (MET).
Last week, AIG reported first quarter earnings of $809 million or $1.21 per share, significantly ahead of the Zacks Consensus Estimate of 48 cents. The solid results were driven by significant improvements in investment income. However, it is notable that premiums, deposits and other considerations were down 6.5% year over year, primarily due to a fall in individual fixed annuities and lower life insurance sales.
AIG’s strategic efforts in restoring its multi-line insurance market presence through its insurance subsidiaries augur well. Additionally, the company is progressing well with its initiatives to unwind the AIG Financial Products Corp.
However, there remain concerns over the difficult conditions that AIG is facing in maintaining the operational performances of its insurance business and required capital levels, particularly in its life insurance operations.
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Read the full analyst report on “MET”
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