AIG Agrees to Pay $2.2 Billion for American Bankers
American International Group Inc. on Monday said it will pay $2.2 billion in stock and cash for American Bankers Insurance Group Inc. to enter the credit insurance business and build its U.S. sales to individuals.
The payment will consist of AIG stock equal to $47 a share, a 6.2% premium over the closing price of American Bankers shares Friday. AIG also said it will pay cash “in certain circumstances” to shareholders who request it.
Shares of American Bankers, which climbed almost 20% in the five weeks ended Friday, rose $1.44 to close at $45.69 on the New York Stock Exchange.
AIG shares rose $1.50 to $106.38, also on the NYSE.
Miami-based American Bankers’ policies, sold through banks, retailers and utilities, cover loans for set periods in the event a borrower is disabled or dies.
“This makes a lot of sense,” said Richard Freeman, a money manager at Century Capital Management Inc. in Boston. “They’ve paid certainly a fair price, and it gives them more definition in some [domestic] areas and bolsters them internationally,” said Freeman, whose firm has about 275,000 AIG shares.
The acquisition gives AIG a company that in 1996 collected $2.5 billion in premiums and gave shareholders a 16.5% return on equity. More than 8% of American Bankers’ 1996 premiums came from extended service contracts on TV sets, stereo equipment and other appliances, a business AIG has entered on its own.
New York-based AIG, a company better known in the U.S. for insuring businesses than people, may use American Bankers to help generate sales of other forms of insurance for individuals, analysts said.
“The cross-selling opportunities are terrific,” said Gloria Vogel, an analyst at Advest Inc. Personal automobile or life insurance could be sold through the banks or other companies that American Bankers serves, Vogel said.
The transaction, which has already gained approval from the boards of directors at both companies, is expected to close early next year and increase AIG’s 1998 per-share earnings.
AIG isn’t the only U.S. insurer using acquisitions to tap into new distribution methods. Conseco Inc., am Indiana-based life and health insurer, in April announced plans to buy Colonial Penn Life Insurance Co. in a move to obtain a direct-marketing system.
The AIG transaction highlights the impetus to raise revenue and lower costs by merging financial service companies. The purchase is the largest in AIG’s almost 80-year history.
