Money Matters, Simplified.
AIG's $15.5bn sale to MetLife raises US stocks
by Ishita Sood - March 9, 2010 - comments
The New York Stock Exchange (NYSE) went up by 3.6 percent after AIG announced the deal. AIG, which has been selling assets to repay government debt since last year, also helped increase McDonald Corp’s stocks.
U.S. stocks rose on Monday after American International Group Inc. announced the sale of its unit Alico along with Sprint Nextel Corp to MetLife Inc. for $15.5 billion. The deal was made to augment revenue growth in the coming quarters.
According to data from Dealogic, the transaction is the fifth largest this year, the total value of the deal being $500.3 billion. The figure is up by 21 percent as against last year.
AIG's sale of AIA Group to Britain's Prudential PLC last week topped the global list.
Dealogic data says the transaction is the second largest for U.S. this year.
“The fact that AIG is starting to get back on its feet is good news,” said Hugh Johnson, chairman and chief investment officer of Albany. “Last week’s economic numbers were encouraging and as we start this week, there’s nothing I see to derail this positive tone.”
The deal
Under the deal, MetLife will be paying $6.8 billion in cash and $8.7 billion in equity securities. The insurance company recorded the biggest gain on S&P 500 going up by 5.1 percent.
With the deal, AIG becomes the second-largest shareholder of MetLife, which expects its earnings to increase by 45 cents to 55 cents a share by 2011.
“Year One (2011) accretion at roughly 10%...is above expectations, in our view,” said Sterne Agree analyst John Nadel.
“We remain focused on Year Two (2012) accretion, as we expect MET will be positioned to alter the original financing through share repurchases from a significantly higher level of free cash flow.”
Bernstein's analyst Bernstein analyst Suneet Kamath said MetLife appears to be financing the transaction using a “conservative mix of capital” at the same time being “cognizant of the concerns ratings agencies have over life insurance as a whole.”
“To be able to structure a transaction of this size using conservative financing terms and have EPS and return on equity accretion in the first year shows the power of this transaction,” Kamath said.
Stocks rise after AIG’s news
The New York Stock Exchange (NYSE) rose by 3.6 percent after AIG announced the deal. AIG, which has been selling assets to repay government debt since last year, also helped increase McDonald Corp’s stocks.
The S&P 500 slipped less than 0.1 percent, while the Nasdaq Composite Index increased by 0.3 percent.
Shares of both AIG and MetLife have soared in the past year. William J. Toppeta, president of MetLife's International business, said that the deal “significantly accelerates” MetLife's global growth.