Executing the terms of the American Life Insurance Co. (ALICO) deal sooner-than-expected, on Tuesday MetLife Inc. (MET) gave its consent to American International Group Inc. (AIG) for selling 78.2 million of MetLife shares and 40 million common equity units that AIG had received as part of its ALICO sale to MetLife, in November last year. Earlier, AIG was supposed to retain MetLife shares until at least August 2011.
Besides, MetLife announced a public stock offering of 68.6 million shares, the proceeds of which will be utilized for buying back its preferred convertible securities from AIG. While such securities could be converted to common shares, MetLife is expected to scrap these contingent convertible securities.
On Wednesday, MetLife further announced the pricing of these shares in transaction. While the AIG’s sale of 78.2 million shares and MetLife’s public offering of 68.6 million shares, totaling 146.8 million shares, are priced at $43.25 per share, the 40 million common equity units received by AIG are priced at $75 a share.
MetLife had paid for the $16.2 billion ALICO deal with cash of $7.2 billion and securities worth about 215 million common shares. Hence, AIG will now be able to cash in the remaining booty, which will further help the company in repaying the government bailout loan.
Meanwhile, AIG expects to use about $6.3 billion of the proceeds from the sale of MetLife shares to reduce the $18.2 billion loan that it owed to the US Treasury. In January this year, AIG repaid the $21 billion loan to the Federal Reserve Bank New York (FRBNY) while also successfully completing the recapitalization program.
However, FRBNY still holds many of the $50 billion worth of complex derivatives that it took off AIG’s balance sheet. Overall, AIG is yet to liberate itself from its commitment to the government, who still owns about 92% of the company’s equity, which was received as part of the recapitalization program, and is worth about $79 billion at current prices.
The whole ALICO deal was carried out by Goldman Sachs Group Inc. (GS), Citigroup Inc. (C) and Credit Suisse Group AG (CS), who were the book-running managers.
AIG also expects to retain about $3.0 billion of the remaining proceeds from the sale of MetLife shares to help MetLife tackle any legal issues that may arise due to ALICO in future.
On the other hand, MetLife is on a development and restructuring mode to address the economic volatility. While the company is set to wind up its operations in Taiwan by the end of April this year, it also added global life insurer– ALICO – to its portfolio.
ALICO is expected to diversify MetLife’s income sources while also mitigating the risks arising from other core operations of MetLife in the US, primarily the auto and home segment. This gets reflected by the management’s assumption of a 30% growth in premiums, fees and other revenues, in the range of $45.8–$47.0 billion, in 2011.
Further, this growth momentum is also expected to contribute to the return on equity, which is estimated to be about 11% for 2011. MetLife has also increased its investment portfolio by about 25% with the inclusion of ALICO.
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