AIG Offloads Star & Edison Units - Analyst Blog

After the successful completion on the recapitalization front last month, yesterday American International Group Inc. (AIG) announced the sale of its Japan-based AIG Star Life Insurance Co. (Star) and AIG Edison Life Insurance Co. (Edison) to Prudential Financial Inc. (PRU) for the agreed price of $4.8 billion.

The sale price comprises cash payment of $4.2 billion while the remaining $600 million is assumed as a third-party debt. On September 29, 2010 AIG had agreed to sell Star and Edison to Prudential Financial, whereby the deal was scheduled for the first half of 2011. However, AIG will continue to retain its remaining insurance operations in Japan.

AIG has been working for the past several quarters to sell its unnecessary businesses in an effort to repay the bailout money. In the recent months, the company completed the successful IPO of AIG's AIA Group Ltd. while also disposing of other assets such as ALICO to MetLife Inc. (MET), Nan Shan Unit to Ruen Chen Group in Taiwan and American General Finance Inc. (AGF) to Fortress Investment Group LLC (FIG). Recently, AIG also announced its intention to vend its rail-car leasing wing, AIG Rail Service Inc. The company also intends to dispose of International Lease Finance Corp. (ILFC), its airplanes leasing unit.

AIG believes that the government will benefit massively from the company's bailout program. Last month, the company successfully repaid the US Federal Reserve Bank New York's (FRBNY) $21 billion credit line while alsocompleting recapitalization program by converting $49.1 billion of preferred stock owned by the Treasury Department into about 1.7 billion shares that will be sold over time in the open market.

The successful completion of the recapitalization program also aided AIG in securing a $4.3 billion credit facility. On Monday, ILFC also announced that it raised $2.0 billion through an unsecured three-year revolving creditfacility. These factors and debt elimination initiatives help gather some optimism for long-term stability.

Overall, we believe that given the consideration that AIG has been working vigorously to attain liberation from the US government and to eliminate redundant operations in order to concentrate on its core global life and property-casualty insurance businesses, the company should finally be able to regain its capital and market position. However, the risk of execution continues to hover around considering the company's credit default swap portfolio, pending asset sales and administrative disturbances within AIG. Several non-recurring charges, associated with the intense restructuring, are also expected to mar the desired upside in the upcoming quarters.

On Tuesday, the shares of AIG closed at $41.06, up 1.8%, on the New York Stock Exchange.

 
AMER INTL GRP (AIG): Free Stock Analysis Report
 
FORTRESS INVEST (FIG): Free Stock Analysis Report
 
PRUDENTIAL FINL (PRU): Free Stock Analysis Report
 
Zacks Investment Research