NEW YORK (CNNMoney.com) -- Britain's Prudential PLC confirmed Monday that it is in advanced talks to buy the Asian life insurance business of bailed-out insurer American International Group Inc.
Negotiations were first reported on Sunday by The Wall Street Journal's online edition, which said that AIG (AIG, Fortune 500) was close to a $35.5 billion sale of American Insurance Assurance Ltd. (AIA) to the British company.
AIA "represents a unique and strategically compelling opportunity" to create the leading insurer in South East Asia," Prudential said in a statement released early Monday.
There is no certainty that talks will lead to a deal, Prudential added.
But the Journal's report said that AIG was close to signing a deal Sunday night to sell AIA for $25 billion in cash and $10.5 billion in stock, including preferred shares and options.
The Journal said the deal has the backing of the U.S. government, which is AIG's majority owner after a massive bailout.
The report said its source said that under terms of the deal, AIG would pay $16 billion of the cash component back to the government to buy back preferred shares given in the bailout.
The remaining $9 billion in cash would be used to pay down the more than $25 billion outstanding under a credit facility from the New York Fed, the source told the Journal.
The deal would be another step in getting AIG out from the nearly $132 billion it borrowed from the federal government beginning in 2008 to avoid collapse.
The Journal, which has reporting on talks between Prudential and AIG for the past few days, said the deal could be announced as early as Monday morning.
AIA markets life insurance throughout Asia and the South Pacific. AIG has said AIA has about 20 million customers throughout the region.
On Friday, AIG announced it lost $8.9 billion in the fourth quarter of 2009, largely due to costs associated with selling off large stakes in its insurance businesses to reduce the debt it owes to taxpayers.
The majority of AIG's fourth-quarter loss came from its December sale of large stakes in AIA and Alico, another foreign life insurance businesses, to the U.S. government. In exchange for those transactions, the Fed reduced the amount AIG has to repay taxpayers by $25 billion. AIG said it took a $5.2 billion charge for that sale last quarter.
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