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AIG is selling its foreign life insurance unit to MetLife Inc. for about $15.5 billion, its second major asset sale in a week as it raises funds to repay a massive U.S. government bailout.

MetLife said Monday that it would pay AIG $6.8 billion in cash and about $8.7 billion in equity for the American Life Å˽ðÁ«´«Ã½Ó³»­ Co. (Alico) unit, confirming an earlier Reuters report.

Founded in 1921, Alico sells life, accident and health insurance as well as retirement and wealth management products in more than 50 countries.

The deal will help MetLife, already the largest life insurer in the United States and Mexico, to diversify revenue sources by product, distribution and geography.

MetLife will get a boost in Japan, the world’s second-largest life insurance market. Alico will also strengthen the company’s position in Europe and move it into a top five market position in many emerging markets in Central and Eastern Europe, the Middle East and Latin America.

MetLife expects the deal to increase its 2011 operating earnings per share by 45 cents to 55 cents, excluding one-time expenses of 12 cents. It sees little overlap, with annualized post-tax cost savings of $50 million to $75 million.

“With this acquisition, MetLife is delivering on its strategy to accelerate international expansion as a powerful growth engine for the company,” MetLife Chief Executive Robert Henrikson said in a statement.

Still, such a large deal comes with its share of execution and other risks, said Clark Troy, a senior analyst at Aite Group.

Alico’s strength in Japan also ties MetLife’s fortunes to an aging society with a huge public debt overhang, Troy said.

“If (Japan) falters or slips back into deflation, MetLife might face challenges growing revenue,” Troy said in an e-mail late Sunday, before the deal was announced.

FED PAYDAY

The deal comes after AIG agreed to sell its Asian life unit, American International Assurance (AIA), to Britain’s Prudential for $35.5 billion in the largest insurance sector deal ever.

The AIA and Alico deals will allow AIG to repay the U.S. government about $31.5 billion in cash after a $182.3 billion taxpayer-funded rescue, with more expected as the insurer sells Prudential and MetLife securities over time.

AIG will use the $6.8 billion in cash from the Alico deal to redeem part of the Federal Reserve Bank of New York’s $9 billion preferred interest in a special purpose vehicle that holds the unit.

The proceeds from these two deals should help AIG pay down all of its Fed debt, but it will still leave the government holding roughly $47 billion in equity investments, including the amount drawn under a $30 billion equity line, and a nearly 80 percent stake in AIG.

The government is likely to follow an exit strategy similar to what it has used so far with Citigroup to untangle itself from AIG, in a process that would probably take years.

A sale comes after months of negotiations and became possible after the New York Fed, advised by Morgan Stanley , agreed in March 2009 to swap its debt into equity in special purpose vehicles that AIG created to hold AIA and Alico.

Early last year, MetLife had offered about $11 billion for the unit, but the price went up in the months after March 2009.

METLIFE STAKE

The equity security portion of the price consists of 78.2 million shares of MetLife common stock valued at $3 billion, 6.9 million shares of contingent convertible preferred stock valued at $2.7 billion and 40 million equity units with an aggregate stated value of $3 billion.

The common stock would give AIG about 14 percent ownership in MetLife, while the convertible preferred is expected to be liquidated before it converts, a source familiar with the situation told Reuters Sunday.

With the convertible preferred stock, though, AIG’s stake would go above 20 percent, several sources said.

MetLife expects to finance the cash portion of the deal with issuances of $3.1 billion in senior debt and $2 billion common stock as well as $1.75 billion in cash on hand.

Both boards have approved the transaction, which the companies expect to close by the end of 2010.

Credit Suisse was lead adviser to MetLife, which was also advised by Barclays Capital, Bank of America Merrill Lynch, Deutsche Bank and HSBC .

AIG is being advised by Citigroup, Goldman Sachs and Blackstone Group, according to several sources.

Shares of AIG were up 7 cents at $28.15 in premarket trading, while MetLife gained 2.7 percent to $39.99.

(Reporting by Paritosh Bansal; Editing by Lisa Von Ahn, Dave Zimmerman)

Topics Mergers & Acquisitions USA AIG Japan