March 7, 2010 / 10:39 PM / 10 years ago

UPDATE 2-AIG to get MetLife stake in $15 bln unit sale

* AIG to get below 20 pct in MetLife at Alico deal closing

* AIG’s stake in MetLife to increase above 20 pct later

* AIG approved sale, MetLife board meeting Sunday night

* Deal announcement could come as soon as Monday (Rewrites throughout to adds advisers, background)

By Paritosh Bansal

NEW YORK, March 7 (Reuters) - AIG (AIG.N) was closing in on a deal on Sunday to sell its foreign life insurance unit to MetLife Inc (MET.N) for about $15 billion in cash and stock, in a transaction that would ultimately leave it with more than 20 percent of MetLife, sources familiar with the matter said.

A deal for the American International Group Inc unit, American Life Insurance Co (Alico), could be announced as soon as Monday, the sources said, declining to be named because it was not yet final.

MetLife’s board was expected to meet on Sunday to weigh the transaction, according to the sources. AIG’s board met Friday and gave the task of final approvals to a special committee, which did so on Sunday, the sources said.

Alico would help MetLife, the largest publicly traded U.S. life insurer, expand its presence in international markets, especially in Japan.

The unit, founded in 1921 and based in Wilmington, Delaware, sells life insurance and retirement products to 19 million customers in 54 countries.

The deal would be the second major business sale by AIG in a week and will allow the insurer to repay billions it owes to the U.S. government after a September 2008 rescue, which has since swelled to $182.3 billion.

The insurer agreed to sell its Asian life insurance unit, American International Assurance (AIA), to Britain’s Prudential Plc (PRU.L) last Monday for $35.5 billion, the largest insurance deal ever. [ID:nNLDE6200C]

AIG, which is nearly 80 percent owned by the U.S. government, declined to comment. MetLife was not immediately available for comment.

METLIFE STAKE

MetLife is expected to pay AIG about $7 billion in cash and the rest in equity, these sources said.

The equity component of the purchase price includes about $3 billion in convertible preferred, and the rest in common stock and temporary securities similar to common shares, the sources said.

AIG will hold below 20 percent of MetLife as a result at closing, a stake that is expected to increase to above 20 percent — but below 25 percent — later, after MetLife’s shareholders approve the conversion of the temporary securities to common stock, these sources said.

The cash component of the consideration is expected to be used to pay down the $9 billion preferred interest that the Federal Reserve Bank of New York holds in the unit, sources said. The equity will be sold over time to redeem the remaining interest, they said.

A sale comes after months of negotiations and became possible after the New York Fed, advised by Morgan Stanley (MS.N), agreed in March 2009 to swap its debt into equity in special purpose vehicles that AIG created to hold AIA and Alico.

The Fed’s aggressive bet has paid off in spades, allowing AIG, which has been advised by Blackstone Group (BX.N) throughout this process, to get much higher values for the two businesses than it was drawing in the months after the bailout.

Early last year, MetLife had offered about $11 billion for the unit, but the price came up in the months after March 2009, as the Fed’s move gave AIG more time to sell these businesses. [ID:nN03218014]

The AIA and Alico deals also share some of the other advisers. AIG is being advised by Citigroup Inc (C.N) and Goldman Sachs (GS.N) on both the deals, while Credit Suisse CSGN.VX has been an adviser for both the buyers, according to several sources.

Under the terms of his contract, AIG Chief Executive Robert Benmosche, a former MetLife chief and current shareholder, cannot be involved in AIG’s discussions to sell Alico to his former employer.

Benmosche, however, played a major role in negotiations in the AIA deal with Prudential. (Reporting by Paritosh Bansal; Editing by Diane Craft) (For more M&A news and our DealZone blog, go to www.reuters.com/deals)

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