AIG’s AIA Gets Prudential (UK), Manulife Offers; China Life Declines

By and | March 4, 2009

The UK’s Prudential Plc and Canada’s Manulife Financial Corp made preliminary offers for American International Group Inc.’s Asian unit, but Prudential’s offer fell short of what AIG wants for the business, sources familiar with the matter said.

Chinese insurer China Life Insurance Co Ltd., which was seen as another large potential bidder, pulled out of the auction for the unit, American International Assurance Co. (AIA), on worries about the quality of the business, a company official said on Tuesday.

“We are no longer bidding for AIA. AIA’s asset quality, business direction and brand have all changed,” China Life Chairman Yang Chao said.

The auction of AIA, one of the U.S. insurer’s prized and largest assets, has faltered, with bidders dropping out and AIG finding it hard to get people to pay top dollar for the business.

AIG wants between $20 billion and $40 billion for AIA, depending on the size of the stake sold, people close to two parties that have looked at AIA have told Reuters.

Prudential offered a “modest price,” but its expression of interest did not meet the seller’s pricing expectations, a source said. The status of Manulife’s bid was not immediately known.

So while AIG said on Monday — without naming the bidders — it had received and was reviewing preliminary offers for AIA after a deadline for bids last Friday, it also said it was weighing other alternatives, including a full or partial initial public offering for the unit.

At the same time, the insurer said it would put AIA and American Life Insurance Co — another large foreign life business it has been trying to sell — in trusts and give the U.S. government preferred ownership interest in them.

The insurer hopes to reduce the outstanding balance of a Federal Reserve credit line by up to $26 billion in return for the preferred shares in these operations.

AIG, Prudential and Manulife all declined to comment.

TOUGH SALE
Plans to sell up to 49 percent of AIA, considered AIG’s crown jewel in Asia, were first put in place last fall, shortly after the U.S. government saved AIG from collapse. But the company has since indicated it would be willing to sell the entire unit for the right price.

But many potential buyers are dealing with their own problems amid challenging capital markets and worsening global economic conditions and the going has been tough.

Reuters reported previously that hopes for a sale were pinned on Prudential, Manulife and the Singapore sovereign wealth fund Temasek Holdings Pte Ltd.

Late last week, hopes for a bid by China Life were also rekindled after the vice chairman of the China Insurance Regulatory Commission said Chinese firms would decide on purely commercial grounds whether to bid for AIA.

Vice Chairman Li Kemu also said the regulator had a favorable view of AIA assets, especially in China and Hong Kong.

AIG posted a record quarterly loss of $61.7 billion on Monday and said the government had agreed to revise its bailout package, giving the company access to a new $30 billion equity commitment. Officials concluded that letting the insurer fail would imperil the world financial system.

AIG’s shares ended up 1 cent to 43 cents on the New York Stock Exchange. (Additional reporting by Langi Chiang in Beijing and Daisy Ku in London; editing by Nick Macfie, John Wallace and Jeffrey Benkoe)

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