AIG Announces Largest Sale To Date With $35.5 Billion Sale of AIA to Prudential
Britain's Prudential plc (NYSE: PUK) has agreed to purchase the Asian life insurance arm of American International Group (NYSE: AIG) for $35.5 billion, a deal that would make the insurer the leader in one of the fastest growing financial services markets.
Prudential announced on Monday that the deal would be financed partly by a $20 billion equity capital raising and a $5 billion debt issue.
The equity capital raising would amount to one of the largest cash calls in history, and will nearly equal Prudential’s current market value of $23 billion.
By adding the 90-year old Asian unit, AIA, it will make Prudential the biggest foreign insurer in the region that is currently experiencing strong economic growth that is spurring a strong demand for personal finance services throughout the region.
The substantial investment that has the potential to make shares of Prudential extremely dilutive has caused investors to pull back from the firm on the London Stock Exchange. Shares of Prudential dipped 11.5 percent for 532 pence on Monday.
This move marks the first major transaction by Prudential’s new CEO Tidjane Thiam, who took over as the head of the insurer in October of last year, after the two companies had potential talks over AIA that were unsuccessful.
The deal will allow AIG to raise the funds necessary for it to repay a portion of the bailout money it received during the economic recession.
"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," said Bob Benmosche, AIG President and Chief Executive Officer.
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. 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.
The transaction is expected to close by the end of 2010 and has been approved by the board of directors of both parties. The deal will be subject to the approval of Prudential shareholders, regulatory approvals and customary closing conditions.
Shares of AIG are up 10.09 percent to $27.27 in premarket trade on Monday.
Prudential announced on Monday that the deal would be financed partly by a $20 billion equity capital raising and a $5 billion debt issue.
The equity capital raising would amount to one of the largest cash calls in history, and will nearly equal Prudential’s current market value of $23 billion.
By adding the 90-year old Asian unit, AIA, it will make Prudential the biggest foreign insurer in the region that is currently experiencing strong economic growth that is spurring a strong demand for personal finance services throughout the region.
The substantial investment that has the potential to make shares of Prudential extremely dilutive has caused investors to pull back from the firm on the London Stock Exchange. Shares of Prudential dipped 11.5 percent for 532 pence on Monday.
This move marks the first major transaction by Prudential’s new CEO Tidjane Thiam, who took over as the head of the insurer in October of last year, after the two companies had potential talks over AIA that were unsuccessful.
The deal will allow AIG to raise the funds necessary for it to repay a portion of the bailout money it received during the economic recession.
"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," said Bob Benmosche, AIG President and Chief Executive Officer.
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. 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.
The transaction is expected to close by the end of 2010 and has been approved by the board of directors of both parties. The deal will be subject to the approval of Prudential shareholders, regulatory approvals and customary closing conditions.
Shares of AIG are up 10.09 percent to $27.27 in premarket trade on Monday.
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