NU Online News Service

American International Group's sale of American InternationalAssurance (AIA) Group, one of it two pan-Asian life insurancesubsidiaries, to Prudential Plc of the United Kingdom appears to bein jeopardy.

Analysts believe the sale will fall through, and that AIA willmost likely be sold off through an initial public offering.

A Treasury official also noted that an IPO was a fallbackposition in testimony at a congressional hearing last week.

In testimony at the hearing, Robert Benmosche, AIG CEO,testified that AIG had negotiated "a very aggressive price" forAIA.

AIG announced early this morning that it had rejected PrudentialPlc's proposal to reduce the price from $35.5 billion to $30.4billion.

"...after careful consideration, [AIG] will adhere to theoriginal terms of its previously announced agreement withPrudential plc for Prudential to acquire AIG's wholly ownedpan-Asian life insurance subsidiary AIA Group Limited," AIG said ina statement. "The company will not consider revisions to thoseterms."

In response, Prudential said in a statement that its board is"considering its position."

Prudential Plc said it offered to pay $23 billion of cash, withthe rest of its revised offer in shares and other securities.

The original deal included $25 billion in cash.

AIG will be entitled to a breakup fee of ?153 million ($224.8million at current exchange rate) if Prudential is unable tocomplete the purchase.

Clifford Gallant, head of property and casualty research atKeefe, Bruyette and Woods in New York, said Prudential dropped itsoriginal offer because its shareholders were balking at paying thehigher price.

He said he believes AIG rejected the revised offer, afterconsulting with the U.S. Treasury and the Federal Reserve Board,"either because they think it is too low a price or, even at thatprice, the deal might not get done."

In testimony last week at the Congressional hearing, a FederalReserve Board official testified that it owns non-controllingpreferred equity interests in AIA as well as another pan-Asian lifeinsurance company, American Life Insurance Company (Alico), ascollateral for a $29.8 billion credit facility that finances AIG'soperations.

Alico is on the block to be sold to MetLife, and that dealremains on target, according to analysts and company officials.

Gallant said that if the Prudential Plc deal doesn't get done,and "it looks like the Pru deal is off," AIG and the governmentwill go back to its fallback position--selling the company throughan IPO.

Gallant testified at the Congressional hearing that he thoughtAIG was "grossly overvalued."

AIA Group has operations in Australia, Brunei, China, Hong Kong,India, Indonesia, Macau, Malaysia, New Zealand, Singapore, SouthKorea, Thailand and Vietnam.

Alico, one of the largest insurance companies in Japan, is beingsold for approximately $15.5 billion, including $6.8 billion incash and the remainder in equity securities of MetLife.