March 1 (Bloomberg) — American International Group Inc. may sell an Asian life insurance unit to Prudential Plc for more than $35 billion, the company’s largest asset sale since a U.S. government bailout in 2008, people briefed on the matter said.
AIG and Prudential aim to reach an agreement to sell American International Assurance Co. in coming days, although the talks could collapse, the people said, declining to be identified because the matter is private. Prudential offered about $25 billion of cash, which it would raise by issuing equity, and the remainder in stock, one of the people said. The price is about 50 percent more than Prudential’s market value.
The sale, the biggest in the insurance industry excluding government bailouts, would be a change of course for AIG, which had planned an initial public offering for the Hong Kong-based unit to help repay its $182.3 billion rescue. Prudential, which wants to boost revenue from Asia, will get a business with more than 90 years in Asia, more than 20 million customers and over $60 billion of assets in 13 markets in the region.
“Strategically it’s probably the right move” for Prudential, said Justin Urquhart Stewart, who oversees about $3.3 billion as director of 7 Investment Management in London, including Prudential shares. “It puts them into a different league.”
New York Talks
The purchase price would represent 1.5 times to 1.7 times the embedded value of AIA in 2009, one of the people said. Embedded value estimates a company’s net worth excluding new business.
JPMorgan Chase & Co., HSBC Holdings Plc and Credit Suisse Group AG agreed to underwrite a $20 billion rights offering and $5 billion of debt, the person said. Prudential also plans to issue $10 billion of common stock, preference shares and convertibles, the person said.
Though AIG executives believe an IPO would have a value similar to Prudential’s offer, the sale offers more cash up front, one of the people said.
Prudential Chief Executive Officer Tidjane Thiam was in New York last week meeting with AIG executives to discuss the bid, one of the people said. Thiam said in a Feb. 17 interview that he wants to raise the proportion of sales from Asia to 80 percent by 2015 from 50 percent now. Prudential operates in 13 Asian nations and is seeking to offset slower growth in the U.K.
An acquisition of AIA, founded in Shanghai in 1919, would give Prudential a business with 20,000 employees and 250,000 agents in markets spanning China to Australia. AIA sells life, accident and health insurance policies, and private retirement planning and wealth management services, according to its Web site.
London-based Prudential has a market value of 15.3 billion pounds ($23.3 billion). The stock has more than doubled in the past year. The shares rose 2.3 percent to 602.5 pence in London trading on Feb. 26. The company has an A+ credit rating with a negative outlook at Standard & Poor’s and an A2 rating with a negative outlook at Moody’s Investors Service.
“Prudential has a very strong capital position, but an acquisition of this size would probably need equity financing to support it,” said Antonello Aquino, a senior credit analyst at Moody’s, who follows European insurers.
Prudential is working with Credit Suisse Group, HSBC and JPMorgan on a share sale to fund the purchase, one of the people said. Sky News first reported the negotiations on Feb. 27. Lazard Ltd. is also advising Prudential, the person said.
The U.K. insurer plans a $20 billion rights offering to finance the purchase, Reuters reported. Lloyds Banking Group Plc completed the U.K.’s biggest rights offering in December, raising 13.5 billion pounds.
AIG said last May that it would pursue an IPO of AIA after an auction of the business failed to turn up bids that matched what AIG executives thought the company was worth. That included a bid from Prudential that valued AIA at about $15 billion, one of the people said.
Prudential spokesman Ed Brewster declined to comment, as did AIG spokesman Mark Herr. Credit Suisse, Lazard and JPMorgan also declined to comment. A spokesman for HSBC didn’t respond to an e-mail seeking comment, and a spokeswoman for AIA in Hong Kong didn’t respond to a voicemail left on her mobile phone outside regular office hours.
The sum raised in the sale would exceed the total of more than 20 other asset sales announced by AIG, which has struck deals to raise more than $12 billion by selling units, including a U.S. auto insurer and equipment guarantor.
AIG had a fourth-quarter net loss of $8.87 billion, narrowing from $61.7 billion a year earlier when the insurer recorded the biggest loss in U.S. corporate history, the company said Feb. 26.
The insurer gave stakes in American Life Insurance Co., known as Alico, and AIA, its biggest non-U.S. life insurance units, to the Fed in December. MetLife Inc. has said it is in talks to buy Alico, which operates in more than 50 countries outside the U.S.
McKinsey & Co. has estimated Asia will deliver around 40 percent of global life insurance premium growth over the next five years.
AIG’s board approved the sale of AIA and Federal Reserve and Treasury Department officials signed off on it, the Wall Street Journal reported today, citing people familiar with the situation.
Prudential’s offer may tempt other insurers to bid for AIA, especially if AIG were prepared to lower its asking price, said Eamonn Flanagan, a Liverpool-based analyst at Shore Capital Group Plc who has a “buy” rating on the stock.
AIG hired about seven additional banks to help manage an IPO for AIA in Hong Kong, according to five people familiar with the decision.
Credit Suisse, CCB International, Goldman Sachs Group Inc. and UBS AG were among banks due to work with the original sale managers, Deutsche Bank AG and Morgan Stanley, said the people, who declined to be identified before a public announcement.
Prudential Plc has no relation to Newark, New Jersey-based Prudential Financial Inc. and operates in the U.S. through its Jackson National Life Insurance Co. unit.