The Wall Street Journal today broke a story that MetLife is in talks to acquire AIG's prime asset ALICO, a life insurance subsidiary with operations in 54 countries around the globe. The reported cost to MetLife would be $14-15 billion. ALICO, was in June 2009 was placed into a special interest vehicle along with AIA, another large AIG subsidiary, to reduce AIG's outstanding debt to the New York Fed by $25 billion. At the time ALICO was valued at $9 billion, so the deal in the works would represent a $5-6 billion premium, of which AIG would retain 95%, after covering financing costs to the Fed (at 5% per annum). While some hackles will no doubt be raised that AIG is getting another sweetheart deal, any strengthening of the hobbled insurer's balance sheet increases the probability that the taxpayer and government will be made whole in time. It would also validate the patient strategy of AIG CEO Robert Benmosche, who has successfully argued that the insurer's crown jewels should not be dumped at fire sale prices.
The other side of the deal is what this will do for MetLife. Already the United States' largest insurer, this deal would roughly double MetLife's revenues, vaulting it into the top 10 insurers in the world in one fell swoop.
|Before||Revenues US $ blns||After||Revenues US $ blns|
|Source: Datamonitor Global Top 10 Insurance Companies 3Q09, ALICO and MetLife web sites|
Aside from sheer scale implications, however, the acquisition might be a steep climb for MetLife. At present the firm derives about 85% of its top line from US operations. At its investor day for 2009, it lists its key international presences as life, medical and accident insurance in Mexico, institutional life in Chile, institutional pensions in Brazil, and variable annuities in the UK and Japan. It might also have added the #2 share of its P&C joint venture in Japan with Mitsui Sumitomo. ALICO, by contrast, operates around the world, with a top 5 presence in over half of the markets where it operates, and a particularly strong positioning in certain mature markets such as Japanese life insurance.
So there is strong complementarity between the MetLife and ALICO, but not insubstantial risks. How will MetLife, which in recent years moved its headquarters to Queens and then back to Manhattan, integrate with the culture of the far-flung ALICO? MetLife sells through many channels, including a huge fleet of independent brokers, while ALICO is dominated by a captive agent model. If the deal goes forward, it will lead to a complicated and tumultuous integration, no doubt, full of promise but also of pain.
Disclosure: FSMKX, FSTMX, FSIIX -- only index funds