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By MATTHEW KARNITSCHNIG, LIAM PLEVEN and DANA CIMILLUCA
American International Group Inc. was closing in on a deal on Sunday to sell its Hartford Steam Boiler unit to Germany's Munich Re for a price expected to be greater than $700 million, or 1.2 to 1.5 times the unit's book value, according to people familiar with the matter.
The transaction would mark AIG's first major divestiture as it seeks to pay back up to $60 billion in loans it received as part of its September government rescue.
The price, expected to be well below the $1.2 billion AIG paid to acquire HSB in 2000, underscores the leverage buyers have for even AIG's most prized businesses. As it seeks to dispose of assets to repay its loans, AIG faces the dual burden of its own weakness and a depressed economic environment that has made it difficult for potential buyers to raise money.
Founded in 1866 in Hartford, Conn., HSB is considered one of the world's leading specialty insurers and reinsurers. It insures steam boilers, along with mechanical and electrical equipment for customers around the world. It also offers inspection services and engineering consulting.
Representatives for AIG and Munich Re declined to comment.
Münchener Rückversicherungs-Gesellschaft AG, or Munich Re, is the world's largest reinsurer by revenue. Founded in 1880 in Munich, the company provides reinsurance to traditional insurance companies in 150 countries for everything from oil rigs to satellites and hurricanes.
The U.S., where it has been active since 1899, is one of its most important markets. AIG said in October that HSB would be among the assets it would sell to pay back the government. AIG has several years to repay its loans but the company is trying to dispose of businesses as quickly as possible, both to free itself from the interest it is paying to the government and to avoid further deterioration in the assets' value.
Even though most of AIG's units weren't linked to the risky investments that nearly caused the group's bankruptcy, many of these businesses have come under pressure. Since AIG's rescue, dozens of its executives and underwriters have jumped to rivals, sales of key products at home and overseas have fallen significantly, and investment losses have mounted.
An AIG spokesman said AIG has had a handful of senior executive departures but that, overall, the company has maintained management continuity during an unsettled period.
The developments mean that the giant insurer still faces serious challenges even after the government supplied extra breathing room by easing the bailout terms last month. The company has more time to maneuver since the government agreed last month to cut the interest rate on the loan, and to extend it from two years to five.
But as time ticks away without major deals, it could become harder for AIG to maintain the value of both the businesses it is trying to sell as well as those it's trying to preserve, according to some observers. That could affect taxpayers, who own 80% of the company as a result of the rescue.
"The longer it takes, the greater the franchises are going to be damaged, and the greater the haircut AIG is going to have to take," said Rob Haines, an analyst at CreditSights, an independent debt research firm.
The company has released few details of its insurance units' results beyond third-quarter numbers. But it has acknowledged pressures on various operations around the world. AIG is expecting to raise the bulk of the tens of billions it will need to repay taxpayers by selling some of its valuable life-insurance units around the globe.
Those units are losing business in Japan -- a particularly important market for AIG -- and elsewhere, according to a company filing with the Securities and Exchange Commission last month. Banks in Japan, for instance, have largely stopped selling some products from AIG's largest unit there, known as Alico, for the time being.
"A number of those banking relationships have been put in a suspended mode," said Rodney Martin Jr., AIG's chief operating officer world-wide for life insurance, which includes retirement services.
The eased bailout terms for AIG have generated "some relief among buyers and brokers toward [AIG's] insurance entities," said Dave Bradford, head of research and editorial at Advisen Ltd., which tracks the insurance industry. Quelle: The Wall Street Journal
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