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AIG wins American General
May 11, 2001: 12:10 p.m. ET

Britain's Pru drops its bid in face of AIG's $23B, or $46 a share, stock offer
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NEW YORK (CNNfn) - As expected, American International Group Inc. won its $23 billion takeover bid for American General Corp. Friday, scuttling an earlier deal inked by U.K. insurer Prudential PLC.

The merger agreement ends weeks of talks between the firms. New York-based AIG made an unsolicited $46 a share bid for American General in April that trumped an earlier offer from Prudential. The British insurer had offered $49.52 a share, or $26.6 billion, for American General in March but Pru shares dropped sharply following the bid, which opened the door for AIG.

"This was an opportunity for AIG to take advantage of market dislocation," analyst Al Capra of Putnam Lovell Securities Inc. said. "It was a bad deal for Prudential shareholders. AIG has the financial wherewithal that is unduplicated."

Prudential, which is not related to Prudential Insurance Co. of America, will get $600 million from American General for terminating their agreement.

Terms call for American General shareholders to receive $46 a share in AIG stock as long as it trades between $76.20 and $84.22 for three days in a 10-day period before the deal closes. If AIG shares drop below or rise above that range, American General shareholders will get 0.6037 or 0.5462 AIG shares, respectively.

The acquisition, which is subject to regulatory and customary conditions, is expected immediately to add to AIG's earnings per share. The boards of both companies have approved the deal, which is expected to close by the end of the year.

"This transaction represents an outstanding strategic fit for both companies," American General Chairman and CEO Robert Devlin said in statement announcing the deal.

The purchase of Houston-based American General (AGC: up $0.57 to $45.19, Research, Estimates) will greatly expand AIG's domestic positions in life insurance, retirement savings products and consumer finance, the companies said.

"We are also very pleased we could reach an amicable settlement with Prudential," AIG Chairman Maurice Greenberg said. He added that American General would boost AIG's domestic life insurance business and that the two companies' annuities businesses were a good fit.

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Houston-based American General, one of the nation's largest diversified financial services organizations, controls $124 billion in assets and has a market capitalization of $23 billion. It provides retirement services, life insurance and consumer loans to more than 12 million customers.

New York-based AIG (AIG: down $0.89 to $82.11, Research, Estimates), one of the world's largest insurers, employs about 55,000 people and has operations in more than 130 countries. The firm is the largest underwriter of commercial and industrial insurance in the United States.

Analysts touted the merger as a win for all parties involved, including Prudential, which received a $600 million consolation prize.

The American General purchase will make AIG one of the preeminent life insurers in the U.S., Putnam's Capra said. AIG also will now have a market value of about $215 billion.

AIG has a small life insurance presence in the U.S. but a large annuity and savings operation built around its $18 billion acquisition of SunAmerica two years ago.

"American General has had very little success breaking into variable annuities," analyst Coline Devine of Salomon Smith Barney said. "SunAmerica will help that."

In turn, American General will boost SunAmerica's variable life insurance products.

Several hundred American General employees could lose their jobs, American General CEO Devlin said in a conference call Friday. AIG employees based in New York also may be sent to other parts of the U.S., Greenberg said on the call.

Greenberg has said Devlin will continue to run American General as a subsidiary of AIG, and will be given the post of vice chairman of AIG and a seat on the company's board.

Pru carries on

London-based Prudential (PUK: down $0.01 to $24.16, Research, Estimates) dropped its lawsuit against AIG as part of its agreement to accept the $600 million breakup fee, which will be used for general corporate purposes, a spokesman said.

Prudential was expected to fail in its battle for American General against AIG. But Prudential vowed Friday not to rush into another purchase just because it lost out in its bid.

"The $600 million is nothing to whine about," Putnam's Capra said. "They could do a lot of investing in their Asia operations. It's like getting a coupon to go out and buy another company."

Prudential declined to comment on possible acquisitions but said it is actively looking for something in the U.S. to complement its Jackson National business.

"We will do something in the states when a suitable opportunity presents itself," Prudential spokesman Steve Colton told "Whether it will takes weeks, months or years is an unknown quantity."

Analysts have mentioned John Hancock Financial Services Inc. and Lincoln National as likely U.S. targets for Prudential. Boston-based John Hancock (JHF: down $0.50 to $37.75, Research, Estimates) offers both insurance and investment products to retail and institutional customers. The insurer had $7.6 billion revenue in fiscal 2000 and a market cap of $11.5 billion. Hancock, which went public last year, is in lockup until January 2002.

Prudential would gain a top-ranked annuity business with Philadelphia-based Lincoln National (LNC: up $0.45 to $46.98, Research, Estimates), which had nearly $7 billion revenue last year. graphic

-- from staff and wire reports