The purchase expands MetLife's presence in Japan and high-growth markets in Europe, the Middle East and Latin America. American Life Insurance, known as Alico, operates in more than 50 countries. MetLife currently offers services in 17 countries.
It also moves AIG closer to repaying taxpayers. As of Dec. 31, the company owed the Treasury and the Federal Reserve Bank of New York nearly $130 billion. AIG's bailout package was originally worth up to $182.5 billion.
On March 1, AIG agreed to sell Asia-based life insurer, AIA Group, to Britain's Prudential PLC for $35.5 billion. The two units sell similar products but don't operate in the same markets in Asia.
Investors were pleased with the Alico deal and bid AIG's shares up 3.6 percent, or $1.02, to $29.10. MetLife shares rose $1.98, or 5.1 percent, to $40.90.
MetLife will pay $6.8 billion in cash for Alico. The rest of the purchase price will be paid in stock and equity units, which are eventually convertible to common stock and preferred securities.
AIG will initially hold an 8 percent stake in MetLife. Its stake will reach 14 percent in early 2011 after some MetLife preferred shares are converted into common shares. The stake could reach up to 20 percent, after the insurer receives $3 billion in equity units.
"Rarely does one come across a deal that has such a strong strategic fit," MetLife CEO Robert Henrikson said in an interview with The Associated Press.
Henrikson said MetLife has been in the market for various domestic and overseas acquisitions over the past five years. He said he began discussing a possible Alico deal with AIG in December 2008, three months after the bailout.
AIG and MetLife are based in New York. Robert H. Benmosche, the former head of MetLife, became AIG's CEO in August. Benmosche wasn't involved in the deal discussions, Henrikson said. All talks were handled by a special committee within AIG, he said.
The Alico deal, while good for MetLife, carries some risk, said Aite Group senior analyst Clark Troy.
"Japan is an aging society and MetLife may face challenges growing revenue," Troy said. "However, MetLife does have the ways and means and experience to make the deal work, as they will be building on one of their stronger franchises."
MetLife currently has a successful variable annuity business in Japan.
MetLife's international business grew significantly in 2005 when the company acquired most of Citigroup's international insurance businesses, adding Japan, Australia and Britain to its portfolio. Before then, MetLife had operations in South Korea, Chile and in Mexico, where it is the largest life insurer.
Henrikson said he didn't consider a purchase of AIA Group because "it didn't fit MetLife's growth plans."
As the largest recipient of taxpayer bailout dollars, AIG remains under the supervision of Treasury and the New York Fed. All negotiations around Alico and AIA were monitored by representatives from Treasury and the New York Fed, officials from both agencies said.
With the latest sale, AIG will be able to slash its outstanding government debt of $129.3 billion by about $51 billion, or 39 percent, to about $78 billion. The cash portion of the Alico and AIA deals will be used immediately to pay down an investment in AIG by the Federal Reserve Bank of New York. The equity portion of the deals will be sold over time to help further repay that debt.
The government will also be selling shares it holds in AIG to recoup some of its investment.