Pru P.L.C. To Pay $35 Billion For AIG Unit

The combined Prudential-AIA business would be the largest life insurer in Hong Kong, Indonesia, Malaysia, the Philippines, Singapore and Thailand, and the largest foreign life insurer in China and India.

Prudential says it hopes the combined Prudential-AIA could cut about $340 million in annual expenses.

AIG plans to use the cash proceeds from the proposed AIA Group sale to redeem about $16 billion preferred interests held by a special purpose vehicle affiliated with the Federal Reserve Bank of New York, and to repay about $9 billion it owes on a New York Fed credit facility.

AIG plans to sell the Prudential equity and equity-linked securities over time, after minimum holding periods end, and it wants to use that stream of cash proceeds to repay whatever amount it still owes on the New York Fed credit facility.

AIG announced in 2009 that it would try to sell AIA Group to investors through a public offering. In June 2009, the New York Fed held $16 billion in preferred interests in the AIA special purpose vehicle, and AIG owed about $40 billion on the New York Fed credit facility.

“We decided that a sale to Prudential enables AIG to realize value on a faster track to repay U.S. taxpayers,” AIG Chairman Robert Benmosche says in a statement about the deal.

Like AIA Group, Prudential has a long history of commitment to Asia, Benmosche says.

“This transaction assures AIA of a well-respected, highly-rated, financially strong partner in which its management, customers, employees, agent sales force, and distribution partners can have confidence,” Benmosche says.

Both AIG and Prudential are committed to preserving the AIA brand and the strengths of the AIA sales force, Benmosche says.

Prudential Group Chief Executive Tidjane Thiam says the combination of Prudential and AIA would “create a sector powerhouse in the fastest growing markets in the world.”

Asia accounted for about 44% of Prudential’s 2009 new business profit, and Asia account for about 60% of the 2009 new business profit of the combined Prudential-AIA business, Thiam says.