On March 8, life insurance giant MetLife (NYSE:MET) announced an agreement to acquire American Life Insurance Company (ALICO), from beleaguered global insurance provider American International Group (NYSE:AIG). Below is a brief overview of the deal and the profound impact it is expected to have on MetLife.
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The total transaction price is $15.5 billion, which represents approximately 40% of MetLife's current enterprise valuation of $38.25 billion. In other words, it is very material to MetLife's operations and greatly increases its overall size and geographic footprint. MetLife will pay for the transaction with $6.8 billion in cash and $8.7 billion in a combination of common stock, convertible preferred stock and similar securities.
Impact on MetLife
MetLife expects the deal to add between 45-55 cents per share to 2011 operating earnings. Many analysts have begun to integrate this into their projections and the current consensus is for 2011 earnings of $5.34 per share. Management also anticipates an increase in Return on Equity between 140-160 basis points in 2011. ROE has averaged in the low double digits over the past five years.
The potential for cost savings is minimal and has been pegged at about $50 million. This is because of the minimal market overlap. In fact, costs to integrate the two organizations could be much higher, and in excess of $300 million.
The Bottom Line
There is little question that the deal significantly expands MetLife's global footprint. It boasted of being the largest life insurer in the U.S. and Mexico prior to the deal, and expects to become a leading competitor in Japan. It will also lead to a position amongst the top five insurers in many emerging markets in Europe, the Middle-East and Latin America.
The transaction puts MetLife in place to become a leading global life insurer, on par with U.S.-based Prudential Financial (NYSE:PRU) and Prudential plc (NYSE:PUK) of the U.K., which is also acquiring a large international unit of AIG. China Life Insurance (NYSE:LFC) remains one of the largest in terms of market capitalization, in part due to its lofty multiple of expected earnings. (To Learn more, check out The Industry Handbook: The Insurance Industry.)
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