American International Group Inc.’s (AIG) Nan Shan Life Insurance Co. in Taiwan is expected to receive approval by the first half of this year (1H11). Yesterday, the Financial Supervisory Commission (FSC) of Taiwan announced that it will review the deal and take a decision earliest by the first half.
On January 12, 2011, AIG accepted the bid from Ruen Chen Investment Holding Co. Ltd. (Ruen Chen) in order to divest its 97.57% stake in its Nan Shan unit, for a cash deal of $2.16 billion. However, the deal is subject to regulatory approvals; it was expected to be sealed in a couple of months, but has now been extended.
Ruen Chen is a Taiwanese conglomerate led by Ruentex Group (80%) and Pou Chen Corp. (20%). While Ruentex Group deals in various businesses ranging from supermarkets to textiles, Pou Chen is a listed footwear manufacturer in Taiwan.
Meanwhile, the FSC has asked Ruen Chen to submit the regulatory and other official details of the deal by the 24th of this month. The FSC has been seeking the bidder’s capability of raising funds for the deal as well as the strategy for carrying out Nan Shan’s business in future. This strategy further includes both the financial and the operational aspects.
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 regulatory authorities rejected the deal in August 2010. Later in 2010, 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 the market share in the Chinese insurance market with more than 4 million policy holders, regulatory authorities overall appear to be concerned about vending Nan Shan to the Ruen Chen Group. Their apprehension is based on the acquiring party’s inadequate experience to take over such a high profile business.
Given the scepticism hovering around Ruen Chen’s ability to successfully operate Nan Shan as the conglomerate appears naive in the field of financial services, the FSC is mulling the pros and cons of the deal. These inhibitions appear to have delayed the proposed deal.
On the other hand, through this deal, AIG has finally been able to shed a huge asset burden and has already listed Nan Shan as its discontinued operation.
Overall, AIG has been working for the past several quarters to sell its unnecessary businesses in an effort to repay the bailout money. Through the second half of 2010, 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).
On Friday, the shares of AIG closed at $37.39, down 0.3%, on the New York Stock Exchange.
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