This year is proving to be a big one for mergers and acquisitions. Now that things have started to pick back up in the economy, companies are returning to business as usual. Mergers and acquisitions come about for a number of reasons. The company may be looking to dominate a particular market, increase its presence, or increase its arsenal against competitors. Whatever the reason may be, M&As have the ability to spark dramatic change in a particular industry. MetLife is the latest company to jump on the M&A bandwagon. The company will acquire a big life-insurance business from American International Group Inc. (AIG: Charts, News, Offers) for $15.5 billion. How will this acquisition change MetLife’s business? Is the acquisition really worth the $15.5 billion price tag?
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Stock Analysis
American International Group Inc.’s decision to unload its biggest foreign insurance unit to help repay bailout funds turned out to be a golden ticket for MetLife. The acquisition of American Life Insurance Co. or Alico will propel MetLife to the highly-coveted global insurer status. Alico sells life, accident and health insurance as well as retirement and wealth management products in more than 50 countries. Alico’s offerings align perfectly with MetLife’s businesses. Before this deal, MetLife was primarily a domestic insurance provider with minimal international influence. It has been predicted that the bold and potentially risky deal will boost the portion of MetLife’s overall operating income that comes from overseas to 40% from 15%. The potential risks associated with the deal are minute compared to the benefits that MetLife may receive with this deal.
$15.5 billion is a pretty hefty sum to fork over in order to acquire a division. Especially since the company is still trying to recover from the Great Recession. MetLife was downgraded last year as its investments suffered losses amid the market meltdown. This was obviously not a deciding factor for MetLife because even in the midst of the recession, it made an offer for Alico. MetLife initially offered about $11 billion for the unit early last year, but the price went up in the months after March 2009. With all the declines the insurance industry faced last year, some are wondering how the company will finance this acquisition. The equity portion of the $15.5 billion price consists of 78.2 million shares of MetLife common stock valued at $3 billion, 6.9 million shares of contingent convertible preferred stock valued at $2.7 billion, and 40 million equity units with an aggregate stated value of $3 billion.
If the acquisition works out according to MetLife’s plan, the company will recoup the purchase price back in no time. Alico currently has more than 20 million customers, which could turn into big dollars for MetLife. Any way you look at it, this deal was the right one for MetLife. The company has achieved a lot of success in the domestic insurance market and hopefully that same success will spill over into its global ventures. Shares in AIG jumped 7.4% in early Wall Street trading and MetLife rose 4%.
Other Stuff on MetLife
- MetLife Launches Center for Special Needs Planning – MetLife is launching a dedicated unit for special needs planners who serve the financial needs of families and individuals with special needs.
- MetLife Confirms Q1 Dividends – MetLife confirmed its previously announced declaration of the first quarter 2010 dividends of $0.2500000 per share on the company’s floating rate non-cumulative preferred stock.
Stocks in the News
- Kraft Faces Probe on Cadbury – UK regulators are investigating whether Kraft Foods Inc. (KFT: Charts, News, Offers) misled employees and investors during its battle to take over Cadbury PLC.
- McDonald’s Sales Top Estimates – McDonald’s (MCD: Charts, News, Offers) said global sales rose 4.8 percent in February, topping some analysts’ estimates.
