AIG confirms $35bn Asia sale to Prudential

AIG has reached a "definitive agreement" over the sale of its Asian life insurance business AIA to Prudential for approximately $35.5bn.

The deal includes approximately $25bn in cash, $8.5 bn in face value of equity and equity-linked securities, and $2bn in face value of preferred stock of Prudential, subject to closing adjustments.

AIG will use the cash - the largest amount it has received since its $85bn bailout by the US government - to pay back approximately $25bn to the Federal Reserve Bank of New York (FRBNY), including $16bn held by the FRBNY in the special purpose vehicle formed to hold the interests in AIA, and $9bn under the FRBNY Credit Facility.

AIG said it also intends to monetize the $10.5bn in face value of Prudential securities over time, with all net cash proceeds from the monetization of these securities used to repay any outstanding 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,” said Bob Benmosche, AIG president and chief executive. “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,” Benmosche concluded.

The transaction includes all of the companies of the AIA Group operating in 15 geographical markets across Asia Pacific, including the company’s international network of more than 320,000 agents and approximately 23,500 employees serving the holders of more than 23m in-force policies.

The transaction has been approved by the boards of directors of both AIG and Prudential, and is expected to close by the end of 2010. The transaction is subject to approval by Prudential shareholders, regulatory approvals, and customary closing conditions.