Overview of the Acquisition
Exhibit
99.3
Overview
of the Acquisition
MetLife, Inc. entered into a Stock Purchase Agreement dated as
of March 7, 2010 (the “Stock Purchase
Agreement”) with American International Group, Inc.
(“AIG”) and ALICO Holdings LLC (“ALICO
Holdings”), pursuant to which MetLife, Inc. agreed to
acquire all of the outstanding shares of capital stock of
American Life Insurance Company (“ALICO”) and
Delaware American Life Insurance Company
(“DelAm”) for cash and MetLife, Inc. securities
presently valued at approximately $16.1 billion as of
July 30, 2010, subject to certain pre-closing and closing
adjustments (the “Acquisition”). We refer to
the acquired business as the “Alico Business.”
The closing of the Acquisition is subject to certain conditions.
Although no assurances can be given that these conditions will
be timely satisfied or waived, we expect the Acquisition to
close in the fourth quarter of 2010. After giving effect to the
Acquisition, MetLife will be one of the leading global insurance
companies conducting business in more than 60 countries and
serving over 90 million customers worldwide. On a pro forma
basis, after giving effect to the Acquisition and the financing
transactions related thereto, as of June 30, 2010,
MetLife’s total assets and total stockholders’ equity
(excluding noncontrolling interests of $495 million) would
have been $685.0 billion and $48.4 billion,
respectively. For the six months ended June 30, 2010 and
the year ended December 31, 2009, on a pro forma basis,
MetLife would have had total revenues of $34.1 billion and
$54.3 billion, and diluted income (loss) per share from
continuing operations, net of income tax of $2.77 and $(1.36),
respectively. See “— Unaudited Pro Forma Capsule
Financial Information.”
Overview
of the Alico Business
Founded in 1921, ALICO is one of the largest and most
diversified international life insurance companies in the world,
providing consumers and businesses with products and services
for life insurance, accident and health insurance, retirement
and wealth management solutions. The Acquisition will include
all of the Alico Business, including the business’
distribution system, composed of agents, brokers and financial
institutions; 12,500 employees across more than 50
countries; and 20 million customers worldwide. The
Acquisition also will include the Alico Business’ Global
Benefits Network serving U.S. and foreign multinationals.
For the six months ended May 31, 2010 and the year ended
November 30, 2009, the Alico Business had total revenues of
$7.0 billion and $14.1 billion, respectively, and net
income of $694 million and $807 million, respectively.
As of May 31, 2010 and November 30, 2009, the Alico
Business had total assets of $109.6 billion and
$113.0 billion, respectively, and stockholders’ equity
of $13.2 billion and $12.7 billion, respectively.
International diversification is a key strength of the Alico
Business. The Alico Business is a leader in many of the
countries and markets in which it operates. The Alico
Business’ principal products, based on revenues for the
year ended November 30, 2009 are: (i) traditional life
insurance (35%); (ii) accident and health insurance (29%);
(iii) fixed and variable annuities (23%); and
(iv) group life insurance (13%). The Alico Business uses a
multi-channel distribution strategy driven by a captive agency
force, brokers, bancassurance (a bank sales channel used to sell
insurance products) and direct marketing. The Alico Business
generated premium income and other consideration of
$9.9 billion for the year ended November 30, 2009.
The Alico Business’ principal international markets,
products and distribution methods are as follows:
| • | Japan. The Alico Business is among the largest foreign life insurers in Japan, which accounted for $7.8 billion, or approximately 55%, of its total revenues for the year ended November 30, 2009. Its principal products in the Japanese market are accident and health insurance, traditional life insurance, individual annuity and group life insurance. Its products are distributed through its captive agency force, independent agents, brokers, bancassurance and direct marketing. | |
| • | Western Europe. Western Europe accounted for $2.7 billion, or approximately 19% of the Alico Business’ total revenues for the year ended November 30, 2009. In the Western European region, the Alico Business offers niche products combined with a multi-channel distribution approach in the United Kingdom, Ireland, France, Spain, Portugal and Italy. Its products are principally traditional life insurance, accident and health insurance and group life insurance, and its products are distributed through bancassurance, brokers, captive |
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| agencies, direct marketing, family offices, private banks, independent financial advisers and agencies. In addition, the Alico Business also provides wealth management services, particularly to the high net worth market, and other potentially high growth businesses and also offers cash onshore (unit-linked) bonds, life savings and retirement products and bulk purchase annuities. |
| • | Central and Eastern Europe. The Alico Business has the largest insurance platform in the Central and Eastern European region with 13 markets, which include Poland, Greece, Bulgaria, Slovakia, the Czech Republic, Ukraine, Russia, Romania, Hungary, Latvia, Serbia, Lithuania and Cyprus. This region accounted for $1.7 billion, or approximately 12% of the Alico Business’ total revenues for the year ended November 30, 2009. The Alico Business’ principal products offered in the region include life insurance (traditional and unit-linked), accident and health insurance, individual annuities, group life insurance, pension funds and mutual funds. Its products are distributed through captive agency, bancassurance, brokers, group sales force and direct marketing distribution channels. | |
| • | Middle East, Africa and South Asia. This region accounted for $0.8 billion, or approximately 6% of the Alico Business’ total revenues for the year ended November 30, 2009. The Alico Business has the largest geographical coverage of any insurance company in the Middle East, Africa and South Asia regions with 16 markets, which include the United Arab Emirates, Bangladesh, Lebanon, Egypt, Turkey, Saudi Arabia, Jordan, the area governed by the Palestinian National Authority, Bahrain, Qatar, Oman, Kuwait, Pakistan, Nepal, Yemen and Liberia. The Alico Business’ principal products offered in these regions include traditional life insurance, accident and health insurance, group life insurance and pensions. Its products are distributed through captive agency, group, bancassurance and broker distribution channels. | |
| • | Latin America. The Alico Business conducts operations in the Latin American region in 24 markets, which include Chile, Colombia, Argentina, Uruguay, Panama, the Caribbean, Mexico and joint ventures in Peru and Venezuela. This region accounted for $0.8 billion, or approximately 6% of the Alico Business’ total revenues for the year ended November 30, 2009. The Alico Business’ principal products in this region include traditional life insurance, accident and health insurance, individual annuities, group life insurance and pensions, and its products are distributed by captive agencies, bancassurance, brokers, direct marketing and through worksites. |
The remaining 2% of revenues for the year ended
November 30, 2009 related to ALICO’s corporate
segment, which includes home office operations in Delaware and
operations of DelAm.
The Alico Business has a comprehensive investment portfolio,
which includes government bonds issued by Asian and European
nations. In particular, as of November 30, 2009, the Alico
Business held $11.5 billion in carrying value of debt
issued by Japan, $1.3 billion in carrying value of debt
issued by Greece and an aggregate carrying value of
$1.3 billion of debt issued by Portugal, Spain, Italy and
Ireland.
Rationale
for the Acquisition
MetLife expects that the Acquisition will increase stockholder
value by increasing MetLife’s return on equity and by being
accretive to operating earnings per share. In addition, MetLife
believes that the Acquisition will provide significant long-term
strategic and financial benefits to its stockholders, including
a significant long-term growth in revenues, earnings and returns
on equity. In particular, MetLife believes that the Acquisition
will:
| • | Significantly Broaden MetLife’s Diversification by Product, Distribution and Geography. The Acquisition will greatly diversify MetLife’s revenue and earnings sources by product, distribution and geography. |
| • | In terms of geographic diversification, as a result of the Acquisition, MetLife will have a market presence in 64 different countries, up from 17 at present, which, MetLife believes, will create significant advantages over its international competitors by providing scale and access to many higher growth markets. | |
| • | The Acquisition will also diversify MetLife’s product mix by increasing the proportion of premium, fees and other revenues in accident and health insurance products and certain types of traditional life insurance products, where the primary risks are morbidity and mortality, and reducing MetLife’s relative exposure to |
2
| market-sensitive products such as annuities. For the year ended November 30, 2009, accident and health insurance and traditional life insurance products accounted for 64% in the aggregate of the Alico Business’ total revenues. |
| • | As a result of the Acquisition, MetLife’s distribution sources will be further diversified. In addition to MetLife’s existing professional agency, employers and third-party distribution channels, MetLife will, in the future, have the benefit of adding the Alico Business’ captive and independent agency and direct marketing distribution channels, as well as enhancing its own third-party distribution channel by combining it with that of the Alico Business. |
| • | Meaningfully Accelerate MetLife’s Global Growth Strategy. The Acquisition will materially advance MetLife’s presence in mature markets such as Japan and Western Europe and establish leading positions for MetLife in many emerging and developing markets. For the year ended November 30, 2009, approximately $7.8 billion, or approximately 55%, of the Alico Business’ revenues were generated in the Japanese market. Another $2.7 billion, or approximately 19%, of its 2009 revenues were generated in Western Europe. The Acquisition will result in the formation of a premier global life insurance franchise, and, according to premium income information derived from the AXCO Insurance Information Services Ltd. 2008 reports, the combined business will be ranked (i) the number one life insurer in the United States, Mexico and Chile, (ii) the number one insurer for individual life insurance in Russia and (iii) the number one foreign life insurer in Japan, with a growing presence in India and China and a significant presence in Europe. |
In addition, the Alico Business has leading positions in many
emerging and developing markets in Central and Eastern Europe,
the Middle East and Latin America. Leveraging the combined
business, the broad portfolio of product solutions and
experience in managing diversified distribution channels,
MetLife believes that it will not only be strongly positioned in
the international markets in which MetLife and the Alico
Business currently operate, but it will also be well positioned
to enter new markets with high growth potential. MetLife
believes that its collective historical expertise in building
and growing operations in developing markets, coupled with
scalability of the combined company’s business model around
the globe, will be a cornerstone of MetLife’s future
geographic expansion.
| • | Create the Opportunity to Build an Unparalleled International Franchise Leveraging the Alico Business’ Key Strengths. The Alico Business has an established track record of organic growth. At the core of the Alico Business’ strength are its broad geographic diversification, its leading position in many of the markets in which it operates, as well as its diversified distribution methods and balanced product mix favoring protection products. MetLife believes that this strong positioning, coupled with the Alico Business’ longstanding presence in markets that are now effectively closed to new entrants as a result of their restrictive regulatory regimes, makes its platform extremely difficult to replicate today. Accordingly, the Acquisition will create a unique opportunity to continue to build MetLife as an unparalleled international franchise leveraging the Alico Business’ key strengths. |
Unaudited
Pro Forma Capsule Financial Information
The following unaudited pro forma capsule financial information
shows the effect of the Acquisition on certain specified balance
sheet and income statement items. This selected data is referred
to as unaudited pro forma capsule financial information. The
information under “Selected Pro Forma Combined Balance
Sheet Items” assumes the Acquisition was completed on
June 30, 2010. The information under “Selected Pro
Forma Combined Income Statement Items” gives effect to the
Acquisition as if it had been completed on January 1, 2009.
This unaudited pro forma capsule financial information assumes
that the Acquisition is accounted for using the acquisition
method of accounting and represents a current estimate based on
available financial information and has been adjusted to reflect
the anticipated financing of the Acquisition and changes to
assets and liabilities to record their preliminary estimated
fair values.
The unaudited pro forma capsule financial information is based
on the combination of the specified line items included in
(i) the unaudited historical interim condensed consolidated
balance sheet of MetLife, Inc. at June 30, 2010,
(ii) the unaudited historical interim condensed
consolidated statement of operations of MetLife, Inc. for the
six months ended June 30, 2010 and (iii) the
historical consolidated statement of operations of MetLife, Inc.
for the
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year ended December 31, 2009, with the corresponding line
items included in (x) the unaudited historical interim
condensed combined balance sheet of the Alico Business at
May 31, 2010, (y) the unaudited historical interim
condensed combined statement of income of the Alico Business for
the six months ended May 31, 2010 and (z) the
historical combined statement of income of the Alico Business
for the year ended November 30, 2009. The unaudited
historical interim condensed financial statements and historical
financial statements of both MetLife, Inc. and the Alico
Business have been prepared in conformity with accounting
principles generally accepted in the United States of America
(“GAAP”).
The unaudited pro forma capsule financial information should be
read in conjunction with the unaudited historical interim
condensed consolidated financial statements at and for the three
and six months ended June 30, 2010 of MetLife, Inc.
included in its Second Quarter
Form 10-Q,
the historical consolidated financial statements at and for the
year ended December 31, 2009 of MetLife, Inc. included in
its 2009
Form 10-K,
as well as the
Form 8-K
filed by MetLife, Inc. on August 2, 2010, which includes as
exhibits: (i) the unaudited historical interim condensed
combined financial statements of the Alico Business as of and
for the six months ended May 31, 2010, and (ii) the
historical combined financial statements of the Alico Business
as of and for the year ended November 30, 2009.
The unaudited pro forma capsule information is based upon pro
forma adjustments reflecting the Acquisition which are based on
certain estimates and assumptions. Such pro forma adjustments
may be revised as additional information becomes available. The
actual adjustments upon consummation of the Acquisition and the
allocation of the purchase price of the Alico Business will
depend on a number of factors, including any purchase price
adjustments pursuant to the Stock Purchase Agreement, additional
financial information available at such time, and changes in
values of the purchase consideration and the net assets
acquired. Therefore, the actual adjustments will differ from the
pro forma adjustments assumed in connection with the unaudited
pro forma capsule financial information and it is possible the
differences may be material. MetLife, Inc.’s management
believes that its assumptions provide a reasonable basis for
presenting the significant effects of both the Acquisition and
financing transactions contemplated, and that the pro forma
adjustments give appropriate effect to those assumptions and are
properly applied in the unaudited pro forma capsule financial
information. The unaudited pro forma capsule information has not
been presented in accordance with Regulation S-X published by
the SEC because MetLife, Inc. is not yet required to file the
complete unaudited pro forma financial statements required by
such regulations. MetLife, Inc. will file with the SEC unaudited
pro forma financial information presented in accordance with the
requirements of Regulation S-X no later than 71 calendar
days after the date that the initial report on Form 8-K
disclosing the completion of the Acquisition must be filed.
The unaudited pro forma capsule financial information does not
reflect future events that may occur after the Acquisition,
including but not limited to expense efficiencies or revenue
enhancements arising from the Acquisition. It also does not give
effect to certain one-time charges MetLife, Inc. expects to
incur such as restructuring and integration costs. The unaudited
pro forma capsule financial information is presented for
informational purposes only and is not intended to reflect the
results of operations or the financial position that would have
resulted had the Acquisition been effected on the dates
indicated, or the results that may be obtained by the
consolidated company in the future. Future results may vary
significantly from the results reflected in the unaudited pro
forma capsule financial information because of various factors,
including those discussed in the section entitled “Risk
Factors” in our Quarterly Report on
Form 10-Q
for the period ended June 30, 2010.
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| June 30, 2010 | ||||
| (In millions) | ||||
|
Selected Pro Forma Combined Balance Sheet Items:
|
||||
|
Investments and cash and cash equivalents
|
$ | 462,691 | ||
|
Total assets
|
685,023 | |||
|
Long-term debt
|
26,773 | |||
|
Total liabilities (including redeemable noncontrolling interest
of $129 million)
|
636,089 | |||
|
Total stockholders’ equity (excluding noncontrolling
interests of $495 million)
|
48,439 | |||
|
For the Six |
||||||||
|
Months Ended |
For the Year Ended |
|||||||
| June 30, 2010 | December 31, 2009 | |||||||
| (In millions, except per share data) | ||||||||
|
Selected Pro Forma Combined Income Statement Items:
|
||||||||
|
Premiums, fees and other revenues
|
$ | 22,436 | $ | 43,661 | ||||
|
Total revenues
|
34,053 | 54,256 | ||||||
|
Total expenses
|
29,551 | 56,980 | ||||||
|
Income (loss) from continuing operations, net of income tax
|
2,979 | (1,279 | ) | |||||
|
Income (loss) per common share from continuing operations, net
of income tax, available to common shareholders
|
||||||||
|
Basic
|
$ | 2.78 | $ | (1.36 | ) | |||
|
Diluted
|
$ | 2.77 | $ | (1.36 | ) | |||
|
Weighted average common shares outstanding
|
||||||||
|
Basic
|
1,044 | 1,040 | ||||||
|
Diluted
|
1,051 | 1,040 | ||||||
Purchase
Price and Financing Considerations
The purchase price for the Acquisition is approximately
$16.1 billion (based on the closing price of MetLife, Inc.
common stock of $42.06 per share on July 30, 2010 and
the estimated fair value of the total securities to be issued to
ALICO Holdings). The closing of the Acquisition is expected to
occur during the fourth quarter of 2010. This purchase price is
subject to certain adjustments, including adjustments based on
the after-tax operating earnings of the Alico Business for the
twelve-month period ending May 31, 2010, ALICO’s
risk-based capital at closing, and settlement of intercompany
balances and other items. The potential purchase price
adjustments are more fully described in the Stock Purchase
Agreement. The Stock Purchase Agreement also has indemnification
provisions under which MetLife, Inc. has the ability to recover
a portion of certain losses related to certain specified events.
Under the terms of the Stock Purchase Agreement, and subject to
the adjustments referred to above, MetLife, Inc. will, upon
closing of the Acquisition, (i) pay $6.8 billion to
ALICO Holdings in cash and (ii) issue to ALICO Holdings
(a) 78,239,712 shares of its common stock,
(b) 6,857,000 shares of Series B Contingent
Convertible Junior Participating Non-Cumulative Perpetual
Preferred Stock (the “Series B Preferred
Stock”) of MetLife, Inc., which will automatically
convert into approximately 68,570,000 shares of MetLife,
Inc.’s common stock (subject to anti-dilution adjustments)
upon a favorable vote of MetLife, Inc.’s common
stockholders, and (c) 40,000,000 equity units (the
“Equity Units”) with an aggregate stated amount at
issuance of $3.0 billion, initially consisting of
(x) Stock Purchase Contracts and (y) an interest in
shares of MetLife, Inc.’s preferred stock (the
“Unit Preferred Stock”), which has been treated
as long-term debt for accounting purposes. Distributions on the
Equity Units will be made quarterly at an annual rate of 5% of
the stated amount (2% on the Stock Purchase Contracts and 3% on
the Unit Preferred Stock). As permitted by the terms of the
Stock Purchase Agreement, MetLife, Inc. may seek to modify the
terms of the Equity Units, including by replacing the Unit
Preferred Stock with a different host security, in order to
achieve the desired equity treatment from the rating agencies.
The $6.8 billion cash portion of the purchase price will be
funded by MetLife, Inc. through the issuance of senior debt with
varying maturities and interest rates, the issuance of common
stock and cash on hand. The unaudited pro forma capsule
financial information reflects (i) the assumed issuance of
$3.1 billion in senior debt and related increase
5
in interest expense using MetLife, Inc.’s current
anticipated borrowing rates for such types of securities and
(ii) the assumed issuance of 75,000,000 shares of
MetLife, Inc. common stock, at an assumed price of
$42.06 per share, net of issuance costs. The underwriters
have been given an overallotment option in the amount of 15% of
the shares of common stock offered. It has been assumed for the
unaudited pro forma capsule financial information that the
underwriters will not exercise this option.
The $3.1 billion in senior debt will be issued in several
series with varying maturities and interest rates which may be
fixed or floating, with an estimated range of interest rates
between 2.9% and 6.6%, depending on maturity. MetLife,
Inc.’s borrowing rates are sensitive to changes in
risk-free rates and credit spreads. An increase or decrease in
interest rates of 0.125 percent on debt issuances would
result in a change in estimated annual interest expense of
$4 million ($2 million semi-annually).
Common stock dividends are determined annually by MetLife,
Inc.’s Board of Directors after taking into consideration
factors such as MetLife, Inc.’s current earnings, financial
condition, regulatory capital position, and applicable
governmental regulations and policies.
This unaudited pro forma capsule financial information reflects
management’s best estimate of the forms and amounts of
financing as of July 30, 2010. The actual terms and
conditions of financing of the Acquisition may involve different
forms of financing and/or different amounts of the same types of
instruments. These differences in form and amount of financing
could result in materially different amounts than those
presented herein.
Series B
Preferred Stock, Common Stock and Equity Units Issued to ALICO
Holdings
The Series B Preferred Stock will automatically convert
into 68,570,000 shares of MetLife, Inc.’s common stock
(subject to anti-dilution adjustments) upon a favorable vote of
MetLife, Inc.’s common stockholders. If MetLife, Inc. fails
to obtain this favorable vote of its common stockholders before
the first anniversary of the closing of the Acquisition, then
MetLife, Inc. must pay ALICO Holdings approximately
$300 million. The Series B Preferred Stock will
participate in dividends pari passu with MetLife,
Inc.’s common stock on an as-converted basis.
Pursuant to the Stock Purchase Agreement, MetLife, Inc. will
issue 78,239,712 shares of its common stock to ALICO
Holdings. The anticipated amount of $3,291 million is based
on the closing price of MetLife, Inc.’s common stock of
$42.06 on the New York Stock Exchange on July 30, 2010.
Pursuant to the Stock Purchase Agreement, MetLife, Inc. will
also issue Equity Units in aggregate stated amount of
$3.0 billion and an estimated fair value of
$3,165 million, which will include the Unit Preferred Stock
and the Stock Purchase Contracts that will settle on three
specified future settlement dates (an aggregate of
$1.0 billion on each settlement date). Distributions on the
Equity Units will be made quarterly at an annual rate of 5% of
the stated amount (initially $75) of each Equity Unit.
Purchase
Price Allocation
Of the $16.1 billion of cash and MetLife, Inc. securities
issued to ALICO Holdings relating to the Acquisition,
$456 million is allocated to the effective settlement of
debt securities and guaranteed investment contracts
(“GICs”) issued by MetLife that are owned by
the Alico Business, and the remainder is allocated to the
purchase of the Alico Business.
The purchase price for the Alico Business will be allocated to
assets acquired (including identifiable intangible assets
arising from the Acquisition) and liabilities assumed based on
their estimated fair values. The fair value adjustments in
connection with the Acquisition are described below. The excess
of the total purchase consideration of the Acquisition over the
estimated fair value of the identifiable net assets acquired
will be recorded as goodwill, which is included in total assets
in the unaudited pro forma capsule financial information.
6
For purposes of presentation in the unaudited pro forma capsule
financial information, the financing of the Acquisition and
allocation of purchase price is assumed to be as follows:
|
Anticipated |
||||
| Financing Amount | ||||
| (In millions) | ||||
|
Sources:
|
||||
|
Cash
|
$ | 657 | ||
|
Fixed/floating rate senior debt
|
3,100 | |||
|
MetLife, Inc. common stock
|
3,155 | |||
|
Total cash financing
|
6,912 | |||
|
Series B Preferred Stock issued to ALICO Holdings
|
2,884 | |||
|
MetLife, Inc. common stock issued to ALICO Holdings
|
3,291 | |||
|
MetLife, Inc. Equity Units issued to ALICO Holdings
|
3,165 | |||
|
Total securities issued to ALICO Holdings
|
9,340 | |||
|
Total source of funds
|
$ | 16,252 | ||
|
Uses:
|
||||
|
Debt and equity issuance costs
|
$ | 112 | ||
|
Purchase price
|
16,140 | |||
|
Total uses of funds
|
$ | 16,252 | ||
|
Purchase Price Allocation:
|
||||
|
Total purchase price
|
$ | 16,140 | ||
|
Effective settlement of pre-existing relationships
|
(456 | ) | ||
|
Contractual purchase price adjustments
|
364 | |||
|
Fair value of noncontrolling interests
|
146 | |||
|
Total purchase consideration for the Alico Business
|
$ | 16,194 | ||
|
Carrying value of net balance sheet assets acquired
|
13,329 | |||
|
Pre-closing adjustments
|
300 | |||
|
Carrying value of net assets to be acquired
|
13,629 | |||
|
Estimated acquisition accounting adjustments
|
(2,012 | ) | ||
|
Estimated fair value of net assets acquired
|
11,617 | |||
|
Goodwill
|
$ | 4,577 | ||
Pro
Forma Adjustments
As discussed above, these pro forma adjustments are based on
certain estimates and assumptions. The actual adjustments will
depend on a number of factors, including any purchase price
adjustments pursuant to the Stock Purchase Agreement, additional
financial information available at such time, and changes in
values of the purchase consideration and the net assets
acquired. MetLife, Inc. will record actual adjustments at the
effective date of the Acquisition. Those adjustments will differ
from the pro forma adjustments assumed in connection with the
unaudited pro forma capsule financial information included
herein and the differences may be material.
Pre-Closing
Transactions
Prior to closing, AIG is required to complete certain
transactions that affect the Alico Business. These preclosing
transactions have an estimated net increase on total
stockholders’ equity of $300 million at June 30,
2010. These transactions primarily include intercompany
settlements related to a foreign currency derivative, swaps, AIG
common stock and certain other investments and long-term debt
held by the Alico Business. As calculated, in accordance with
the provisions of the Stock Purchase Agreement, certain of these
transactions would result in an increase in the purchase price
of approximately $300 million.
7
Related
Income Statement Impact
The following gains and losses related to intercompany
transactions that have settled or will settle prior to the
closing of the Acquisition were adjusted: (i) a loss of
$51 million and a gain of $99 million for the six
months ended June 30, 2010 and for the year ended
December 31, 2009, respectively, associated with an
intercompany settlement of a foreign currency derivative between
the Alico Business and AIG, (ii) a gain of $84 million
for the six months ended June 30, 2010 associated with the
intercompany settlement of swap positions between the Alico
Business and AIG Financial Products, and (iii) a gain of
$108 million for the six months ended June 30, 2010
associated with the sale of AIG common stock to AIG.
Investments
and Cash and Cash Equivalents
Investments and cash and cash equivalents include an adjustment
to decrease to fair value fixed maturity securities (relating to
commercial mortgage-backed securities) and mortgage loans by
$193 million and $572 million, respectively, at
June 30, 2010. These adjustments are partially offset by
indemnification assets discussed in “Total Assets”
below. In addition, investments and cash and cash equivalents
include a fair value adjustment to increase policy loans by
$101 million at June 30, 2010.
Related
Income Statement Impact
In connection with the adjustments to investments and cash and
cash equivalents, the fair values become the new cost basis upon
which the related amortization of premium and accretion of
discount are calculated and applied. The estimated reduction in
total revenues associated with fixed maturity securities of
$190 million and $536 million for the six months ended
June 30, 2010 and the year ended December 31, 2009,
respectively, relate primarily to the net change in
premium/discount of those securities. The estimated reduction in
total revenues associated with investments other than fixed
maturities of $9 million and $28 million for the six
months ended June 30, 2010 and the year ended
December 31, 2009, respectively, relates primarily to the
amortization associated with the fair value of policy loans.
Total
Assets
In addition to the investment adjustments described above, total
assets includes the elimination of the Alico Business’
historical deferred policy acquisition costs
(“DAC”) of $10,438 million and deferred
sales inducements of $118 million (as of May 31,
2010). In addition, adjustments related to the establishment of
value of business acquired (“VOBA”) and the
value of distribution agreements (“VODA”)
arising from the Acquisition, which are estimated at
$8,290 million and $951 million, respectively, are
included. VOBA effectively adjusts the assumed
in-force
insurance policy liabilities to the estimated fair value of the
in-force
contracts based on actuarially determined projections for each
block of business. VOBA is amortized in a manner similar to DAC
in relation to estimated gross profits or premiums, depending on
product type. If estimated gross profits or premiums differ from
expectations, the amortization of VOBA is adjusted to reflect
actual experience. The VODA is amortized in relation to the
expected economic benefits of the insurance policies sold by the
acquired distributors.
Total assets includes the establishment of $328 million of
indemnification assets for potential recoveries related to the
deterioration of fixed maturity securities, mortgage loans and
certain investment funds, in accordance with the indemnification
provisions of the Stock Purchase Agreement and related
agreements.
Total assets also include the elimination of the Alico
Business’ historical goodwill of $21 million as of
May 31, 2010 and inclusion of estimated goodwill arising
from the Acquisition of $4,577 million.
An increase or decrease of $1 in the price per share of MetLife,
Inc.’s common stock at the time of completion of the
Acquisition would result in a corresponding increase or decrease
to goodwill of approximately $210 million.
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Related
Income Statement Impact
The historical amortization of DAC and other amortizable
intangible assets of the Alico Business for the six months ended
May 31, 2010 of $914 million and for the year ended
November 30, 2009 of $2,319 million were eliminated in
total expenses for the six months ended June 30, 2010 and
for the year ended December 31, 2009, respectively. Also
reflected in total expenses is the estimated amortization of the
VOBA, VODA and DAC on new business for the six months ended
June 30, 2010 and for the year ended December 31, 2009
of $648 million and $1,225 million, respectively.
Long-term
Debt
Long-term debt includes the issuance of $3.1 billion in
aggregate principal amount of senior debt and the issuance of
$3.0 billion in aggregate liquidation amount of three
series of Unit Preferred Stock of MetLife, Inc. included as a
component of the Equity Units to be issued to ALICO Holdings in
connection with the Acquisition.
Long-term debt adjustments also include the settlement of
$1.0 billion as of May 31, 2010 of intercompany
debt of the Alico Business due to AIG and affiliates prior to
closing, which will be partially offset by an intercompany tax
receivable and other intercompany notes receivable totaling
$450 million as of May 31, 2010.
Related
Income Statement Impact
Total expenses include interest expense (including premium
amortization) of $93 million and $185 million for the
six months ended June 30, 2010 and the year ended
December 31, 2009, respectively, on the $3.1 billion
in aggregate principal amount of senior debt and the Unit
Preferred Stock included as a component of the Equity Units.
Interest expense on the senior debt was calculated based on
MetLife, Inc.’s borrowing rates for the $3.1 billion
in aggregate principal amount of senior debt to August 2,
2010. MetLife, Inc.’s borrowing rates are sensitive to
changes in risk-free rates and credit spreads. Actual interest
rates may differ from those estimated.
Interest expense on the Unit Preferred Stock component of the
Equity Units was based on a contractual rate of 3%.
Total
Liabilities
In addition to the long-term debt adjustments described above,
total liabilities includes the elimination of the Alico
Business’ historical unearned revenue of
$1,412 million as of May 31, 2010, an increase in
insurance liabilities of $2,760 million for certain blocks
of business where the estimated fair value of the in-force
contract obligations exceeds the assumed in-force insurance
policy liabilities as of May 31, 2010 and a
$52 million contingent consideration liability for the
estimated fair value of potential payments under provisions of
the Stock Purchase Agreement relating to the adequacy of
reserves for guarantees on certain U.K. unit-linked business.
Related
Income Statement Impact
The elimination of the Alico Business’ historical unearned
revenues reduced estimated pro forma premiums, fees and other
revenues by $75 million and $232 million for the six
months ended June 30, 2010 and the year ended
December 31, 2009, respectively. The release of insurance
liabilities resulted in a reduction of total expenses of
$99 million and $391 million for the six months ended
June 30, 2010 and the year ended December 31, 2009,
respectively.
Total
Stockholders’ Equity
Total stockholders’ equity includes the elimination of the
Alico Business’ historical equity balances of
$13,183 million, including $972 million in accumulated
other comprehensive income as of May 31, 2010. In addition,
total stockholders’ equity includes the issuance of
6,857,000 shares of Series B Preferred Stock to ALICO
Holdings, the issuance of 78,239,712 shares of common stock
to ALICO Holdings, the issuance of 75,000,000 shares in a public
offering in connection with the financing of the Acquisition and
the Stock Purchase Contracts that form part of the Equity Units
to be issued to ALICO Holdings and the associated contract
payments. Total
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stockholders’ equity excludes noncontrolling interests of
$495 million (of which $146 million relates to the
Alico Business) relating to certain legal entities that are
controlled but not 100% owned.
Income
Taxes
Deferred income taxes of the Alico Business have been adjusted
to reflect the income tax effects of the pro forma purchase
adjustments and the adjustment of the tax basis of the assets
and liabilities acquired reflecting elections pursuant to
Section 338 of the U.S. Internal Revenue Code of 1986,
as amended (the “Code”). The net effect of the
tax adjustments was $1.4 billion ($217 million
reflected as an increase in foreign deferred tax liabilities)
resulting in a net deferred tax liability balance of
$425 million for the Alico Business.
Related
Income Statement Impact
The pro forma pre-tax adjustments were tax effected at the
U.S. tax rate of 35% except for those adjustments related
to certain foreign subsidiaries whose earnings are permanently
reinvested, which were tax effected at the applicable local
statutory tax rate and certain permanent items. The pro forma
pre-tax adjustments to the income statement resulted in an
increase to income tax expense of $191 million for the year
ended December 31, 2009 and a decrease to income tax
expense of $46 million for the six months ended
June 30, 2010 for the Alico Business.
Net
Income (Loss) from Continuing Operations per Common
Share
The pro forma weighted average number of shares of common stock
on both a basic and diluted basis reflects the (i) public
offering of 75,000,000 shares of MetLife, Inc. common stock
in this offering, (ii) issuance of 78,239,712 shares
of MetLife, Inc. common stock to ALICO Holdings and
(iii) conversion of the Series B Preferred Stock into
68,570,000 shares of MetLife, Inc. common stock. The difference
between basic shares and diluted shares for the six months ended
June 30, 2010 relates to the existing potential dilutive
securities issued by MetLife, Inc. and is not impacted by
securities to be issued as part of the Acquisition. For the year
ended December 31, 2009 there is no difference between
basic shares and diluted shares since the existing potential
dilutive securities issued by MetLife, Inc. have been excluded
from the calculation as these securities are anti-dilutive.
The Equity Units issued to ALICO Holdings had no dilutive impact
on pro forma diluted earnings per share under the application of
the treasury stock method.
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