The Lesson Of Faust

26March2010
I work for MetLife Investors, a division of MetLife Inc.

In the financial industry we have been one of the few companies to come through the recession relatively unscathed, largely due to conservative corporate governance that avoided dealing in mortgage backed securities, and what the Wall Street Journal once referred to as a "Fortress-like capital position." This created a number of opportunities for us in the marketplace.

For the better part of a year MetLife has been in talks with AIG to acquire American Life Insurance Co. (ALICO) which is AIG's second-biggest foreign life-insurance unit, in a deal that would propel us from America's largest life insurance provider, to one of the largest worldwide.

Earlier this month a $15.5 billion deal was announced, in which AIG would acquire capital to repay some of the government loans by selling ALICO to MetLife for some $6.8 billion in cash and more than $8 billion in equity. In the era of government bailouts and takeovers, that the deal involved so much equity concerned me.

The President of U.S. business, William J. Mullaney has an open door policy. I decided to put it to the test, going straight to the source with my concerns.

Mr. Mullaney,

I had a couple of questions in regard to MetLife's acquisition of ALICO.

I understand that like AIG's sale of AIA to Prudential, the sale of ALICO to MetLife is an attempt by AIG to raise capital in order to pay back bailout funds to the Federal Reserve.

In regard to MetLife's purchase of ALICO, 6.8 billion was made in cash, and more than 8 billion of the 15 billion purchase price would be paid with MetLife equity.

Per the agreement with AIG, will that equity holding be liquidated prior to repayment? Or will it be signed over to the Federal Reserve, essentially giving the government partial ownership in MetLife?

Any clarification you can provide would be very much appreciated.

Thank you,

Casey Head

I sent that email on March 8th, the day the details of the agreement were announced publicly. I received William Mullaney's response on March 25th, as the details of this transaction are public record, I feel I can ethically post the content of that email.

Casey

Thanks for your question concerning how MetLife will fund the Alico transaction. I'm sorry for the delay in getting back to you. I have been traveling quite a bit this month.

You are correct in that MetLife will be paying AIG cash and securities valued at approximately $15.5 billion, subject to closing adjustments. It is also true that a portion of the securities will include common stock and securities that can be converted into or exercised for MetLife common stock.

These securities will be held by AIG for certain determined periods of time. Therefore, because the U.S. Federal Government owns 80% of AIG, the government will, upon closing, indirectly own common shares in MetLife as well as securities that can be converted into or exercised for MetLife common stock.

However the U.S. government's indirect ownership stake in MetLife stock won't subject our company to any additional government oversight.

Thanks for taking the time to write to me.


Bill

For all of our sake I hope he's right about our company not being subject to government oversight. But I think it's an excellent illustration of the insidious nature of government participation in the private sector. You can do everything right, and still be put in the position of handing a piece of your company over to the government in the name of a good business decision.

The lesson is that of Faust, when dealing with the Devil; Dont.