Business Context and Reporting Period
Company: American International Group, Inc. (AIG)
Filing Type: Form 8-K (Current Report)
Date of Report: March 7, 2010
Event: Entry into a Material Definitive Agreement for the sale of American Life Insurance Company (ALICO) and Delaware American Life Insurance Company.
Key Financial Metrics and Transaction Details
The filing details a definitive agreement to sell ALICO to MetLife, Inc. for a total consideration of approximately $15.5 billion. The consideration structure is as follows:
- Cash: $6.8 billion (to be paid to the Federal Reserve Bank of New York to reduce liquidation preference).
- MetLife Common Stock: 78,239,712 shares.
- Convertible Preferred Stock: 6,857,000 shares (convertible into 68,570,000 common shares).
- Equity Units: 40,000,000 units with an aggregate stated value of $3 billion (consisting of junior preferred stock and stock purchase contracts).
Liquidity and Debt Impact: Proceeds from the monetization of MetLife securities are intended to pay the remainder of the Federal Reserve Bank of New York's liquidation preference and subsequently repay the outstanding balance of AIG's lending commitment under the Credit Agreement dated September 22, 2008.
Material Changes and Conditions
Transaction Conditions: Closing is subject to regulatory and antitrust approvals, and ALICO maintaining a minimum total adjusted capital to risk-based capital ratio of at least 400%.
Termination Provisions: The agreement may be terminated if closing does not occur by January 10, 2011 (extendable to July 10, 2011 if regulatory approvals are pending), or in the event of a material breach of representations or warranties.
Indemnification: Equity units will be held in escrow for 30 months to secure indemnity obligations. AIG has agreed to provide cash or liquid assets if the Seller lacks sufficient assets to satisfy these obligations.
Outlook, Risks, and Management Commentary
Financial Statement Impact: AIG is currently assessing the timing and recognition of gain or loss on the sale.
Goodwill Assessment: AIG is assessing the recoverability of goodwill in its Foreign Life Insurance & Retirement Services – Japan & Other reporting unit.
Risks: The transaction is contingent on governmental approvals and specific capital ratios. There are risks associated with indemnity claims and the timing of monetizing MetLife securities.
Investor Verification Checklist
- Verify the final closing date and whether all regulatory and antitrust conditions were met.
- Confirm the actual gain or loss recognized on the sale in subsequent financial statements.
- Monitor the progress of the goodwill impairment assessment for the Japan & Other reporting unit.
- Track the timeline for the monetization of MetLife securities and the subsequent repayment of FRBNY obligations.
- Review any indemnity claims filed by MetLife against the escrowed equity units.