AIG 2010 Annual Report Download - page 256

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Discontinued Operations
The results of operations for the following sales are presented as discontinued operations in AIG’s Consolidated
Statement of Income (Loss) for all periods presented.
ALICO Sale
On March 7, 2010, AIG and ALICO Holdings LLC (the ALICO SPV), a special purpose vehicle formed by
AIG, entered into a definitive agreement with MetLife for the sale of ALICO by the ALICO SPV to MetLife,
and the sale of Delaware American Life Insurance Company by AIG to MetLife, for consideration then valued at
approximately $15.5 billion, consisting of $6.8 billion in cash and the remainder in equity securities of MetLife,
subject to closing adjustments. The ALICO sale closed on November 1, 2010. AIG does not have any continuing
significant involvement with or significant continuing cash flows from ALICO. The fair value of the consideration
at closing was approximately $16.2 billion. At December 31, 2010, a total of $6.5 billion is included in preferred
and common stock trading, and is recorded at fair value with unrealized gains and losses recorded in Net
investment income and for certain derivative components, in Net realized capital gains (losses).
On the closing date, as consideration for the ALICO sale, the ALICO SPV received net cash consideration of
$7.2 billion (which included an upward price adjustment of approximately $400 million pursuant to the terms of
the ALICO stock purchase agreement), 78,239,712 shares of MetLife common stock, 6,857,000 shares of newly
issued MetLife participating preferred stock convertible into 68,570,000 shares of MetLife common stock upon the
approval of MetLife shareholders and 40,000,000 equity units of MetLife with an aggregate stated value of
$3.2 billion. AIG intends to monetize these MetLife securities over time, subject to market conditions, following
the lapse of agreed-upon minimum holding periods. AIG recorded a pre-tax gain of $4.1 billion on the transaction
in 2010.
Under the Master Transaction Agreement, net cash proceeds from the ALICO sale were held in escrow pending
the Closing of the Recapitalization. Upon the Closing of the Recapitalization, these cash proceeds were loaned by
the ALICO SPV to AIG and were used to repay amounts owing under the FRBNY Credit Facility and, together
with other funds, to repurchase all of the FRBNY’s SPV Preferred Interests.
Prior to conversion into MetLife common stock, the MetLife participating preferred stock will be entitled to
dividends equivalent, on an as-converted basis, to those that may be declared from time to time on MetLife
common stock.
Each of the equity units of MetLife has an initial stated amount of $75 and consists of an ownership interest in
three series of senior debt securities of MetLife and three stock purchase contracts with a weighted average life of
approximately three years. The stock purchase contracts obligate the holder of an equity unit to purchase, and
obligate MetLife to sell, a number of shares of MetLife common stock that will be determined based on the
market price of MetLife common stock at the scheduled settlement dates under the stock purchase contracts (a
minimum of 67,764,000 shares and a maximum of 84,696,000 shares in the aggregate for all equity units, subject to
anti-dilution adjustments). The equity units provide for the remarketing of the senior debt securities to fund the
purchase price of the MetLife common stock. They also entitle the holder to receive interest payments on the
senior debt securities and deferrable contract payments at a combined rate equal to five percent of their stated
amount. The equity units have been placed in escrow as collateral to secure payments, if any, in respect of
indemnity obligations owed by the ALICO SPV to MetLife under the ALICO stock purchase agreement and
other transaction agreements. The escrow collateral will be released to the ALICO SPV over a 30-month period,
to the extent not used to make indemnity payments or to secure pending indemnity claims submitted by MetLife.
240 AIG 2010 Form 10-K