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AIG to Buy Hartford Broker-Dealer Woodbury Financial Services

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American International Group is buying the Hartford’s broker-dealer arm, Woodbury Financial Services, Inc.

According to analysts at Sandler O’Neill in Chicago, there are two keys to the transaction.

First, it will add to AIG’s SunAmerica Financial Group’s Advisor Group, which is one of the nation’s largest networks of independent broker-dealers.

Second, “It is a sign of AIG’s improved financial position that the company can consider acquisitions as part of its strategy.”

Analysts estimate that the deal could generate as much as $115 million in proceeds, with up to $90 million coming from AIG and $25 million coming from Woodbury in the form of a dividend.

The purchase price could be revised downward if Woodbury falls short of certain revenue targets before the deal closes.

The agreement is expected to close by the end of 2012, subject to regulatory approval and other customary closing conditions, according to Liam E. McGee, the Hartford’s chairman, president and CEO.

Paul Newsome, managing director of Sandler O’Neill’s insurance analysis group, says the Federal Reserve Bank of New York did not have to approve the transaction because its oversight of AIG ended once the Treasury Department acquired the N.Y. Fed’s stock interest in AIG, and AIG and the N.Y. Fed managed to close out the special purpose vehicles created to provide some cash for AIG.

He also said it was a “good sign” that the Treasury Department considered it another sign that the acquisition was in the best interest of AIG and its shareholders, with the government owning approximately two-thirds of AIG”s common stock.

“If Treasury didn’t think this was a good decision, it could have told them not to do it,” Newsome said.

John Barnidge, a vice president at Sandler O’Neill, cautions that a “pushback” to the acquisition may be that the company is using capital that could have otherwise been utilized to accelerate the government’s ownership exit.”

Barnidge adds, “That being said, the acquisition is small in nature by AIG standards and probably fits very well within its existing broker-dealer units.”

Woodbury’s approximately 1,400 advisors complements AIG’s Advisor Group’s network, which includes more than 4,800 independent financial advisors at SagePoint Financial, Royal Alliance Associates and FSC Securities Corporation. Patrick McEvoy will continue to serve as Woodbury’s president and CEO, and will report to Larry Roth, president and CEO of Advisor Group.

Roth noted the importance of the acquisition, stating, “Adding Woodbury Financial to our Advisor Group network sends a clear message that we are absolutely committed to the independent financial advisor business model. We will continue to invest in our advisors to help them grow their practices and better serve their clients.”

Jay Wintrob, president and CEO of SunAmerica Financial Group, added that, “Woodbury Financial Services is a strong broker-dealer, with very talented independent financial advisors and a dedicated home office team.”

Wintrob said that, “I am confident that when Woodbury Financial’s advisors join our network they will see tremendous benefits, namely our industry-leading technology and open architecture platform.”

The Hartford placed Woodbury for sale as part of its decision to divest itself of life insurance operations in order to concentrate on property and casualty-related businesses.

Woodbury is based in Woodbury, Minn., and dates back to 1910. It had more than $230 million in revenue in 2010, according to several sources.

It sells annuities, life insurance, mutual funds, college savings plans unit investment trusts and alternative investments as part of financial planning by the middle-class and wealthy, as well as seniors.