Manulife Weighs Bid for AIG's Asian Units

The Globe and Mail, Tara Perkins & Andrew Willis, 25 September 2008

Manulife Financial Corp. is weighing a bid for Asian operations of American International Group Inc., a move that would vault the Canadian insurer into the top ranks of one of the world's hottest insurance markets.

Chief executive officer Dominic D'Alessandro and his successor Don Guloien, who will take over when Mr. D'Alessandro retires in May, have been meeting with investment bankers and financial advisers in the past week to look at an offer for parts of AIG, according to people familiar with the matter.

Manulife is most likely to bid for Asian operations. Mr. Guloien, who headed up Manulife's mergers-and-acquisitions department from 1994 to 2001, is a seasoned deal maker who was instrumental in the firm's push into Japan.

He has been responsible for the company's Asian operations, which currently account for roughly one-fifth of its profit, since last year.

Manulife and its advisers are pouring over AIG's public documents in preparation for what they expect to be a heated battle for parts of the firm.

The Toronto-based life insurer, North America's biggest by market capitalization, has also begun scouring the wreckage of the financial crisis for other acquisition opportunities.

Manulife spokeswoman Laurie Lupton declined comment yesterday.

There are stumbling blocks to a deal for the most coveted pieces of AIG, the New York-based insurance behemoth that was bailed out by the U.S. government last week after being nearly crippled by mortgage exposure.

AIG is believed to be already working on deals for some of its non-insurance assets, such as its aircraft leasing business, but officials at the company are still coming up with a process to sell parts of its insurance operations, according to sources familiar with the situation. It's not yet clear what businesses, if any, it will be willing to part with.

Competition for the Asian operations is expected to be fierce and to attract some of the world's biggest insurers. The company's most prized assets are in Asia and the U.S., where AIG holds big slices of the markets.

AIG's roots are in Asia, and its life insurance operations in the region could fetch $28-billion to $37-billion (U.S.), according to Credit Suisse. Investment bankers predict a protracted bidding war and improved credit conditions could push the price of the company's Asian unit above $40-billion. AIG's Asian insurance business is five times the size of Manulife's operations in the region.

Two likely rivals for any Asian piece of AIG: Beijing-based China Life Insurance Co. and Shenzhen-based Ping An Insurance Group Co. of China Ltd. China Life has $8-billion (U.S.) of excess capital, while Shenzhen-based Ping An has up to $6-billion. Both companies are debt-free, according to Credit Suisse analyst Chris Esson.

In comparison, Manulife has $3-billion (Canadian) of excess capital it could use in an acquisition, and could likely borrow an additional $2-billion.

"If AIG were to pursue a break-up, we believe China Life and Ping An would be interested in acquiring the Asian operations," Mr. Esson wrote in a report.

The two Chinese firms could prove tough for Manulife to beat. "I cannot see any Canadian insurer competing with China Life for what should be seen as a once-in-a-lifetime opportunity to establish the premier life insurance franchise in Asia," said one Toronto-based investment banker who works with Chinese firms.

Other AIG prize assets include the U.S. group retirement business, which could be sold for up to $9.8-billion, while its U.S. annuities division could fetch $8-billion, analysts say. This unit has $80-billion in assets, making it half again larger than Manulife's U.S. annuity business.

AIG's new CEO Edward Liddy, who was given his role by the U.S. government, plans to host a conference call on Oct. 3 to update shareholders on the company's "future direction."

As part of its 11th-hour rescue deal on Sept. 23, AIG received an $85-billion (U.S.) credit line from Washington with an interest rate that currently amounts to more than 11 per cent, which must be repaid within two years.

The suitors that have begun circling AIG are hoping Mr. Liddy will feel more heat to repay the loan quickly than he does to get the maximum price for any asset sales.;