NU Online News Service

American International Group's sale of American International Assurance (AIA) Group, one of it two pan-Asian life insurance subsidiaries, to Prudential Plc of the United Kingdom appears to be in jeopardy.

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

A Treasury official also noted that an IPO was a fallback position 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" for AIA.

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

"...after careful consideration, [AIG] will adhere to the original terms of its previously announced agreement with Prudential plc for Prudential to acquire AIG's wholly owned pan-Asian life insurance subsidiary AIA Group Limited," AIG said in a statement. "The company will not consider revisions to those terms."

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, with the 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 ($224.8 million at current exchange rate) if Prudential is unable to complete the purchase.

Clifford Gallant, head of property and casualty research at Keefe, Bruyette and Woods in New York, said Prudential dropped its original offer because its shareholders were balking at paying the higher price.

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

In testimony last week at the Congressional hearing, a Federal Reserve Board official testified that it owns non-controlling preferred equity interests in AIA as well as another pan-Asian life insurance company, American Life Insurance Company (Alico), as collateral for a $29.8 billion credit facility that finances AIG's operations.

Alico is on the block to be sold to MetLife, and that deal remains 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 government will go back to its fallback position--selling the company through an IPO.

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

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

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

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AIG&#039;s AIA Sale To Prudential Appears in Jeopardy

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