Daily Management Review

Arch Capital to buy AIG’s Mortgage-Guaranty Unit for $3.4 Billion


08/16/2016




Arch Capital to buy AIG’s Mortgage-Guaranty Unit for $3.4 Billion
The mortgage-guaranty unit of American International Group Inc would be sold to Arch Capital Group Ltd for about $3.4 billion, the former announced on Monday.
 
The sale of United Guaranty Corp would give $975 million in non-voting common-equivalent preferred stock¸ $250 million in Arch Capital's perpetual preferred stock and $2.2 billion in cash would be available to AIG which is the largest commercial insurer in the United States and Canada.
 
As part of a sweeping overhaul promised to shareholders to fend off activist investor Carl Icahn, it mortgage unit would be spun off, its broker-dealer network would be sold and jobs would be cut, AIG had said in January. An initial public offering of up to $100 million with U.S. regulators was filed by United Guaranty later in March.
 
The insurer has been pushed to split itself into three smaller companies by Icahn whose representative secured a board seat at AIG earlier this year.
 
The company would be free from having to comply with stricter capital requirements if it could shed its designation as a systemically important financial institution and this is want was being pushed for by the billionaire investor.
 
Driven by lower costs and strong underwriting, a bigger-than-expected quarterly operating profit was reported by the insurer earlier this month. The Shares of Arch Capital and AIG were unchanged in after-market trading on Monday.
 
While Sullivan & Cromwell LLP was AIG’s legal adviser, J.P. Morgan Securities LLC and Morgan Stanley & Co LLC advised AIG on the deal. With Cahill Gordon & Reindel LLP and Clyde & Co acting as legal counsel, Arch's financial adviser was Credit Suisse Group AG.
 
Neanwhile in another bit of news from the world of mergers and acquisitions, talks are reported to have started by Gas supplier Praxair Inc. to buy Germay's Linde AG. A deal that would create a market leader with a value of more than $60 billion is in its initial stages as sources were quited saying that the U.S. industrial gas supplier is in early-stage to acquire German peer Linde. The news sent shares in Linde higher.
 
As slower economic growth has weakened demand in the manufacturing, metals and energy sectors and put pressure on smaller players to compete, such a deal would highlight a wave of consolidation sweeping the industrial gas sector.
 
In a year that other mega deals were shot down due to antitrust concerns, such as U.S. oilfield services provider Halliburton Co's $34.6 billion acquisition of Baker Hughes Inc, a combination of Praxair and Linde would also test the tolerance of regulators for more transformative deals.
 
According to the source, who spoke on condition of anonymity because the talks are confidential, any potential deal could still fall apart as the details of the talks, which were first reported by the Wall Street Journal, were not immediately clear.
 
Making the shares in Linde the biggest gainers on Germany's blue-chip index, which was down 0.9 percent, they jumped 5 percent to an eight-month high at 146.30 euros. Compared with a market value of about $33.7 billion for Praxair, Linde has a market value of around 27 billion euros ($30.4 billion).
 
(Source:www.reuters.com) 






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