Francesco Guerrera
In late November, Robert Benmosche, AIG's chief executive, agreed to reopen long-dormant talks with Tidjane Thiam, his counterpart at the UK insurer, over the sale of AIA, the US group's giant Asian arm.
Until then, Mr Benmosche had been reluctant to listen to the Pru and was determined to press ahead with a Hong Kong listing of a stake in AIA. But senior bankers at Credit Suisse managed to get the two sides together, paving the way for the $35.5bn cash-and-shares deal announced yesterday, according to people familiar with the situation.
The upper echelons of the Swiss bank that, with JPMorgan Chase, advised the Pru on the purchase, know Mr Benmosche well because he served on its board until taking over at the government-controlled US insurer in August.
In spite of the Pru's long interest in a business that has a dominant presence in the fast-growing Asian region, AIG had its misgivings about a sale of AIA to the UK group.
First on Mr Benmosche's list of concerns was the Pru's ability to pay for a deal bigger than its own market capitalisation. With his government paymasters demanding a return on the $80bn-plus they had poured into AIG since staving off bankruptcy in September 2008, Mr Benmosche could not take any risks with one of the company's most prized assets.
"Bob was saying there was no way the Pru could pay for this, so why talk to them?" says a person who followed the negotiations closely. With preparations for an initial public offering at full speed, there seemed to be little point in Mr Benmosche spending much time with Mr Thiam.
Credit Suisse, which was also advising on the IPO, set up two separate teams and segregated them behind "Chinese walls" to avoid conflicts of interest. And as the talks proceeded, the merits of an outright sale of AIA became apparent.
If the Pru could come up with the funds, AIG would get billions upfront and reduce its indebtedness to US taxpayers by a considerable amount. In addition, a full divestment would free AIG from the pressure of having to manage AIA at a time when it had clearly indicated it was no longer a core business.
Mr Benmosche believes that AIG can survive as an independent company only if it shrinks down to its international non-life insurance unit and its US life and retirement business - a much smaller core than the global behemoth created by Hank Greenberg, AIG's long-standing chief.
The question of the Pru's ability to pay went down to the wire. Even during last weekend's board meeting, some directors favoured the IPO because of the financing risks associated with a sale, insiders say.
The issue was complicated by a cacophony of conflicting advice. On one hand, the lead advisers on the IPO, Morgan Stanley and Deutsche Bank, which stood to make millions of dollars in fees if the listing went ahead, continued to lobby to stay with Plan A.
On the other side, Citigroup, Goldman Sachs, which advised AIG on the divestment but also had junior roles on the IPO, and Credit Suisse argued for the benefits of a sale. AIG's board was advised by Blackstone.
The Pru's insistence that it would be able to raise $21bn in a huge share sale eventually won the day.
The deal had to be fully underwritten by the banks in order to convince AIG, the New York Fed and the US Treasury that the funding was there. One banker said: "We were told to turn up at AIG with the our group chief executives, so Tidjane Thiam was sat there with Jamie Dimon [of JPMorgan] on one side and Brady Dougan [of Credit Suisse] on the other presenting to the board, the Fed and the Treasury. It was only then they believed we had the money."
The question now is whether other obstacles will arise. People close to the situation say a rival Asian bidder could emerge.
Copyright The Financial Times Limited 2010.
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