A surprisingly hard sellBusiness, Insurance | October 4, 2010 at 1:13 am
It is often said that insurance is not sold to people, it is bought by people and that is so very true for AIA, which is insurance giant AIG’s Asian life insurance division. AIA has been crying itself hoarse trying to sell itself this year and this is the third attempt this year to try and sell itself to a potential buyer to no avail. No one is willing to get anywhere near AIA and a listing was approved on September 21st in Hong Kong and the offer is now expected to go public on October 29th.
Given the ridiculous ineptness and gross corruption and misconduct on the part of AIG, it will almost miraculous if AIA manages to get some sort of a deal done. There was an early attempt to list AIA but this was pulled out of in March because a deal seemed to be materializing for Prudential to buy out AIA. But the British insurer could not raise the money to complete the deal and it was in June that the deal collapsed. It has been quite a similar tale to tell for the sale of AIG’s Taiwanese life insurance division and it is quite clear that many buyers, or maybe even any buyers, want to step forward to deal with the tainted and much reviled life insurance operator or any of its subsidiary operations.
The Taiwanese outfit had announced a deal the previous October but it was finally revealed that this deal fell through earlier in September. That was put down to the buyer’s shadowy financing links and potential links that could be traced back to the Chinese regulators, meaning that the Taiwanese regulators put the kibosh on the deal going through. These failed deals have gone and made employees and all potential customers very skittish, for the manner of AIG’s dealings over in the US of A and the manner in which these deals have failed have only heightened fears of failure. That is a particularly toxic state for an insurer to find itself in.
AIG is going to incredible lengths in order to make sure that the AIA listing doesn’t fall through yet again. They have gone and hired 15 investment banks co-ordinate and run this sale and hiring so many big investment banks minimizes the risk of being lambasted by analysts, but given the nature of AIG’s operations in the US and their history, it will be hard to imagine how commentators and analysts don’t rip into the American insurance biggie. Another issue is that the investment banks hired have overlapping client coverage and so they might not be able to spur on demand for these shares by a whole lot. Also remember the small matter of commissions; these investments are not run by Mother Teresa, and they will look to take their pound of flesh from AIG. With a set of banks this large, that might mean the price of the offer might be diminished and the offer size stretched.
This is a pity given that the assets being sold are still strong, but the trickledown effect of AIG’s negative goodwill (badwill??) was unavoidable. AIG went belly up because of the gross mismanagement of its derivatives business, but its Asian unit is still a good array of assets. AIA is an industry leader when it comes to life insurance in Hong Kong, Singapore, Thailand, the Philippines, Macau and Brunei. Laughably, there is a story in Malaysia that talks about your baby arriving at the same time as an AIA agent looking to sell you products linked to the baby’s future.
If it weren’t in so much trouble with American taxpayers, there is no doubt that AIG would be looking to hold on to AIA for all it is worth. It is a prized asset that is making money even in an uncertain time with management churn refusing to go away. Revenues have grown by 14% and even if competitors are growing twice as fast, it shouldn’t be hard to sell AIA in a high growth market with immense potential. The only reason it has taken this long is because it is a division of AIG and nothing else.