Bailed-out insurer American International Group Inc (AIG.N) said it will buy independent brokerage unit Woodbury Financial Services from Hartford Financial Services Group Inc (HIG.N) for $90 million to bolster its broker-dealer network.
Hartford is expected to receive $115 million in proceeds from the deal, including $25 million in dividends from Woodbury, subject to certain conditions.
Hartford said in late March it would shut down its annuity business and sell its life insurance, retirement plan and broker-dealer operations as part of a restructuring to focus on its property insurance business.
The company has come under pressure to boost its stock price from hedge fund manager John Paulson, who is also its largest shareholder.
AIG's life and retirement business SunAmerica Financial Group will buy the unit and merge it with its Advisor Group, a network of independent broker dealers.
Reuters reported in March that Woodbury, which hasn't posted a profit in at least five years, would be able to lure bids from a small circle of expansion-minded rivals.
Minnesota-based Woodbury, which has about 1,400 advisers, was the 12th-largest independent securities brokerage with $254 million in revenue last year. Yet like its rivals, profit margins have been squeezed by technology, compliance and other costs.
Independent advisers receive roughly 90 percent or more of the commissions and fees they generate, but they also are responsible for paying their own business expenses.
Ladenburg Thalmann Financial Services (LTS.A) and Cetera Financial Group were said to be potential bidders for the unit.
On Tuesday, analysts at Sterne Agee said AIG appeared to be getting more cash than expected from the Federal Reserve's Maiden Lane III asset sales, which would give the company added financial flexibility.
While the Woodbury deal is not AIG's first acquisition since the bailout, it is perhaps the highest-profile, at least domestically. AIG's other deals were mostly international or related to a non-insurance unit.
The company is due to report earnings on Thursday, and if recent patterns hold, the U.S. Treasury is likely to sell another chunk of its 61 percent stake in the company soon after.
Hartford said the deal will generate a "modest gain" for the company, and will have no impact on its 2013 earnings.
AIG shares closed at $31.27 while Hartford shares closed at $16.45 on Tuesday on the New York Stock Exchange.
(Reporting by Sharanya Hrishikesh and Ashutosh Pandey in Bangalore; Editing by Anil D'Silva)