The Work

March 8, 2010 12:35 PM

Another Week, Another Huge AIG Sell-Off

Posted by Zach Lowe

After weeks of fits and starts, hand-wringing over tax issues and equity ownership, AIG finally completed the sale of its crown jewel life insurance unit to MetLife for $15.5 billion in cash and stock. We had previously reported that Sullivan & Cromwell was advising AIG on the sell-off of the American Life Insurance Company, or Alico, the latest in a series of sell-offs designed to help AIG repay its massive debt to the federal government. 

Joining S&C as cocounsel for AIG: Weil, Gotshal & Manges. That's not a surprise. Weil (along with Debevoise & Plimpton) advised AIG on a deal, announced in June, which gave the Federal Reserve Bank of New York a $9 billion stake in Alico. Under the terms of that deal, AIG and the Fed created special purpose vehicles for two marquee AIG units with an eye toward preparing both for either sales or initial public offerings. With the sale of Alico to MetLife, AIG has now sold both of those units; last week, it struck a $35.5 billion deal to unload its Asian life insurance unit to the U.K. insurer Prudential P.L.C. (Debevoise advised AIG on that deal.)

Matthew Gilroy, who led the Weil team on the Alico deal along with MIchael Aiello, declined to comment when we reached him today. Aiello did not immediately respond to messages. Partners Robert DeLaMater and Stephen Kotran led the S&C team advising AIG.

Dewey & LeBoeuf advised MetLife. John Schwolsky and Alexander Dye led the firm's team on the matter. Neither responded to messages.

Several outside factors held up the Alico sale for weeks after MetLife revealed its interest in the unit. Since MetLife is paying just $6.8 billion of the $15.5 billion price in cash (with the remainder paid in equity), that raised the possibility early on that the federal government, with a controlling stake in Alico, would end up owning a stake in MetLife, according to Reuters Breakingviews. As Breakingviews put it, the Fed would "achieve the replacement of one illiquid equity stake with another--in a company the government doesn't need to own."

The Fed entity that controls Alico will indeed own a piece of MetLife once the deal closes, but it will sell its stake in MetLife "over time" once minimum holding periods expire, according to Bloomberg. AIG controls all of the common equity in that special purpose vehicle, with the Fed holding a preferred stake valued at $9 billion, according to a source familiar with the matter. 

Davis Polk & Wardwell advised the New York Fed, the firm said. John Knight and Kathleen Ferrell led the firm's team on the deal. The firm said it and its attorneys were not permitted to comment publicly on the deal. 

One other hurdle held up the deal last month: The parties wanted a ruling from the IRS about whether Alico was in violation of a tax rule the IRS implemented in 2004 requiring insurers who sell annuities and life insurance policies outside the U.S. to withhold federal income taxes from payments to their customers, according to The New York Times. Alico never followed the rule, claiming that companies getting at least 80 percent of their revenue from outside the U.S. didn't have to do so, according to the NYT. An adverse ruling from the IRS could have forced Alico to cough up hundreds of millions of dollars in uncollected withholdings, the NYT reported. But the IRS sent signals late last week that it would rule in favor of AIG and Alico on the matter, the NYT reported Thursday.

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