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March 1, 2010 2:12 PM

Debevoise, Slaughter Lead on Mammoth AIG Deal

Posted by Zach Lowe

How big and complex of a deal is the $35.5 billion sale of AIG's Hong Kong-based Asian life insurance unit to the U.K. insurer Prudential P.L.C.? Big enough that Debevoise & Plimpton, AIG's lead counsel on the sale, rented an apartment in Hong Kong for John Vasily, the firm's lead partner on the matter, and flew Vasily in a six-day span late last month from New York to London to Hong Kong and back again to New York (with a stop, of course, in London) to close the deal. 

"The plane was the only place we slept," Vasily says, referring to himself and Andrew Borodach, the AIG in-houser (and former Debevoise associate) who traveled with him for much of the last-minute negotiations. 

And those negotiations were "tough," says Slaughter and May partner William Underhill, who led the firm's team serving as head counsel for Prudential on the deal. "We were dealing with AIG, and they were very tough negotiators," says Underhill. Under the final terms of the deal, Prudential will pay about $25 billion in cash and the rest in stock, creating the likelihood that the U.S. government, which controls AIG and its Asian unit, will receive some stock in Prudential, according to The New York Times and lawyers on the deal.

AIG was pursuing two possible paths right up until the minute before the deal was done: The sale of the unit, American International Assurance (AIA), to Prudential, or an initial public offering that could have netted up to $20 billion, according to the NYT. The alternative of an IPO gave AIG some leverage, and it was able to convince Prudential to increase the size of its offer and agree to various closing conditions, according to the NYT and lawyers who worked on the deal.

Among the interested parties, of course, was the U.S. government, which owns a $16 billion stake in the unit under the terms of an arrangement first announced in June. In that deal, AIG and the Federal Reserve Bank of New York created a special purpose vehicle for AIA in order to prepare the unit for an initial public offering. The government took a controlling stake in AIA under the terms of that deal, which Weil, Gotshal & Manges negotiated for AIG. Davis Polk & Wardwell represented the New York Fed in that deal, and they reprised that role in the sale of AIA announced today. The firm declined to comment on the matter. 

The New York Fed will receive the first $16 billion in proceeds from the sale of AIA to Prudential, according to the NYT and lawyers working on the deal. One lawyer working on the matter tells us the government, as a controlling stakeholder in AIG and AIA, will end up owning some equity in Prudential. The possibility of the government acquiring stakes in other companies as a result of its interest in AIG has reportedly been among the issues holding up the sale of another AIG unit, the American Life Insurance Co. (known as Alico) to MetLife, according to Reuters Breakingviews.  Sullivan & Cromwell is advising AIG on the pending Alico sale to MetLife, according to two sources familiar with the matter. S&C has repeatedly declined to comment on the Alico deal. Like AIA, Alico currently is being held in a special purpose vehicle designed to isolate the company for either an IPO or a sale to a buyer such as MetLife, according to our prior reporting. 

The AIA deal will require regulatory approval from countries throughout Asia, with Hong Kong serving as the bellwether regulator in negotiations, Underhill says. 

Partners Andrew Bab and Jeremy Hill were on the Debevoise deal team along with Vasily. This is at least the fourth major deal on which Debevoise has advised AIG since the government rescued the insurer in late 2008. The firm also advised on the creation of the special purpose vehicles, the sale of AIG's asset management unit to a consortium of private equity firms, and the sale of AIG's Canadian life insurance business to the Bank of Montreal, as we have previously reported.

The Slaughter and May team also includes corporate partners Roland Turnill and Nilufer Von Bismarck, and finance parters Guy O'Keefe and Matthew Tobin, according to LegalWeek.

Cleary Gottlieb Steen & Hamilton provided U.S. counsel to Prudential, with partners Sebastian Sperber, Victor Kewkow, and Sung Kang leading the firm's team. Sperber and Lewkow did not immediately respond to requests for comment. 

Partners John Knight, Ethan James, and Mark Lehmkuhler led the Davis Polk team advising the New York Fed, the firm said.

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