Prudential to Buy AIA from AIG for $35.5 Billion

Published: Tue 02 Mar 2010

Thomas Kristoffersen

American International Group (AIG) announced yesterday a definite agreement on the sale of the AIA Group, one of the biggest pan-Asian life insurance companies in the world, to Prudential for roughly $35.5 billion, including an estimated $25 billion in cash, $8.5 billion in equity-linked securities and face value of equity, and $2 billion in the face value of preferred Prudential stock, subject to final modifications.

The portion of the cash proceeds from the AIA sale, which are the biggest yet in AIG's restructuring program, will be used to cash in preferred interests with a $16 billion liquidation preference maintained by the Federal Reserve Bank of New York (FRBNY) in the special-purpose vehicle created to hold the AIA interests, and to pay back roughly $9 billion under the FRBNY Credit Facility. AIG plans to monetize the Prudential securities worth $10.5 billion over time, subject to the conditions of the market, after the lapse of the number of holding periods agreed upon. Once the securities are monetized, the net cash proceeds will go toward the repayment of any remaining 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," explained Bob Benmosche, CEO and president of AIG. "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.

"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. 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," Mr. Benmosche added.

Started 160 years ago, Prudential is a leading provider of international financial services. The deal with AIG includes all of the AIA Group companies running in 15 Asian Pacific geographical markets, including the insurer's global network of roughly 23,500 employees and 320,000 agents servicing the owners of over 23 million active policies and over 10 million participants in its group medical, life, pension, and credit life coverage products.