AIG to sell Nan Shan in Taiwan for $2.16 billion

American International Group (AIG), the insurer repaying a United States bailout, agreed to sell Nan Shan Life Insurance Co to investors led by Ruentex Group for $2.16 billion in the second attempt to dispose of its Taiwan unit.

AIG will sell a 97.57 per cent stake in Taipei-based Nan Shan to Ruen Chen Investment Holding Co, according to a statement by Ruentex Industries Ltd to the Taiwanese stock exchange today. The buyer will pay in cash.

The deal ends AIG Chief Executive Officer Robert Benmosche’s search for a buyer as he seeks to repay the bailout that ballooned to $182.3 billion. AIG was offered as much as $3 billion for Nan Shan, according to a November 12 letter to the Securities and Exchange Commission that was released by the US regulator on January 4.

 

“It’s very cheap and doesn’t seem to be purely based on price,” said Pandora Lee, who rates competitor Cathay Financial Holding Co a “buy” at UBS in Taipei. “It makes sense for AIG to sell it as this is the only thing they have left in Asia.”

Taiwan’s regulator rejected on August 31 a $2.15 billion bid by a group led by Primus Financial Holdings Ltd and China Strategic Holdings Ltd, citing concerns over their financial capability and long-term commitment. AIG has been trying to complete the disposal since the Primus Financial agreement in October 2009. The New York-based insurer made a deal in December that provides for repayment of a bailout from the US Federal Reserve and sets rules for its exit from government control.

Benmosche divested a majority stake in AIA Group Ltd in October for $20.5 billion and sold a Japanese unit to MetLife Inc, the biggest US life insurer, for $16.2 billion.

‘Very satisfied’
Nan Shan had a book value — or assets minus liabilities — of NT$169 billion ($5.8 billion) at the end of September, making it the largest ahead of Cathay Life Insurance Co with a book value of NT$114 billion, according to data from the Taiwan Insurance Institute.

The unit was sold for a price to book value of 0.38 times, based on the sale price and the book value from the institute. That would make it the second cheapest of 66 life insurance companies with a book value of more than $2 billion, according to data compiled by Bloomberg.

AIG is “very satisfied” with the price and the investors’ commitment to policyholders, Andrew Borodach, an AIG assistant general counsel, said at a briefing in Taipei in response to a query on Nan Shan’s valuation. He also said the $3 billion offer disclosed in the SEC letter was unsolicited and prior to due diligence by the bidders.

AIG has divested more than 30 businesses since January 2009, with a median book value of 2.15 times, according to Bloomberg data. That compares with 1.34 times book value for more than 700 insurance industry mergers and acquisitions in the period, according to Bloomberg data.

‘Five principles’
“Ruen Chen offers strong operational and funding capabilities and possesses a clear ability to satisfy the strict criteria that governed AIG’s bid review process,” Benmosche said in a statement distributed by Business Wire.

The transaction is subject to regulatory approvals, according to the Ruentex statement. Taiwan’s Financial Supervisory Commission (FSC) will review the sale to ensure the deal complies with its five principles, it said in a statement on its website.

The sale “meets the five principles” set by the FSC, Nan Shan Chairman Edmund Tse said in a statement on the company’s website.

Ruentex Group and its partners will borrow NT$40 billion to help fund the purchase, Ruentex Development Co Chairman Davis Liu told a media briefing in Taipei today. The investors may also pay for the purchase using internal funds and the sale of convertible bonds and new stock, Liu said.

An IPO is an option for Nan Shan after the deal is completed, Borodach said.

Ruentex Group
Samuel Yin, chairman of Ruentex Group, had invested in the Taiwan unit of Aetna Inc, the third-largest US medical insurer, and in fund management companies. Yin is the managing director and board member of Sinopac Financial Holding Co and was ranked Taiwan’s 19th richest man by Forbes magazine last year with a net worth of $1.15 billion. Ruentex holds stakes in Sinopac Financial and Pou Chen Corp, a unit of the group, has stakes in Mega Financial Holding Co.

“The acquisition will help Ruentex Group to leverage on AIG’s licences in China to enter the Chinese market quickly,” Kuo Yi-hsin, an analyst at E Sun Securities Co in Taipei, said today. “This is a strategic move on the part of Ruentex as the acquisition of Nan Shan isn’t likely to contribute to its net income for the next few years.”

Bidders including Cathay Financial, Taiwan’s largest listed financial services company, Chinatrust Financial Holding Co and Fubon Financial Holding Co submitted proposals for Nan Shan on December 3.