In AIG’s largest deal since its restructuring efforts, the insurer and Prudential plc agreed upon terms of the sale of AIA Group Ltd. Prudential will purchase the pan-Asian life insurance company for approximately $35.5 billion, including 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 transaction includes all of the companies of the AIA Group operating in 15 geographical markets across Asia Pacific, including the company's international network of more than 320,000 agents and approximately 23,500 employees serving the holders of more than 23 million in-force policies and the more than 10 million participating members of its clients for group life, medical, credit life coverage and pension products.
The cash portion of the proceeds from the sale will be used to redeem preferred interests with a liquidation preference of approximately $16 billion held by the Federal Reserve Bank of New York in the special purpose vehicle formed to hold the interests in AIA, and to repay approximately $9 billion under the FRBNY Credit Facility, according to AIG. AIG intends to monetize the $10.5 billion in face value of Prudential securities over time, subject to market conditions, following the lapse of agreed-upon minimum holding periods. All net cash proceeds from the monetization of these securities will be used to repay any outstanding debt under the FRBNY Credit Facility.
"In considering two viable, very attractive alternatives to successfully monetize AIA, including an initial public offering, we decided that a sale to Prudential enables AIG to realize value on a faster track to repay U.S. taxpayers," said Bob Benmosche, AIG’s president and CEO. "This transaction, the most significant milestone to date in our ongoing effort to repay taxpayers, also gives us greater flexibility to move forward with AIG's restructuring and focus on enhancing the value of our key insurance businesses, which will benefit all stakeholders.
Prudential sees Asia as a growing market. In fact, Tidjane Thiam, chief executive of Prudential, says that in 2008, 44% of new profit for Prudential came from Asia, reports The New York Times; if A.I.A. and Prudential had combined in 2009, that figure would be 60%.
"Combining Prudential, which has long been committed to enhancing its profile in Asia, and AIA, a remarkable Asian franchise, will create an unrivalled life insurance powerhouse in Asia, one of the world's fastest growing markets,” Benmosche agrees. “This transaction assures AIA of a well-respected, highly rated, financially strong partner in which its management, customers, employees, agent sales force and distribution partners can have confidence. Indeed, in undertaking this transaction, both we and Prudential are committed to preserving the AIA brand and the unique strengths of each of our sales forces, which is key to capitalizing on AIA's long-term potential.”
The transaction has been approved by the boards of directors of both AIG and Prudential, and is expected to close by the end of 2010. The transaction is subject to approval by Prudential shareholders, regulatory approvals and customary closing conditions.
The news has already affected AIG’s stock, as shares of AIG have risen 10% as of this writing.
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