(Update) Ayala group expresses interest in Philamlife stake

By Judith Balea and Lala Rimando, abs-cbnNEWS.com and Newsbreak | 10/07/2008 5:33 PM

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Ayala Corp., one of the nation's oldest and biggest conglomerates, is interested in buying Philippine American Life and General Insurance Co. (Philamlife), the local subsidiary of troubled American International Group (AIG).

"The financial services arena has always been of great interest to us," said company chair and chief executive Jaime Augusto Zobel de Ayala, a member of one of Manila's most elite families. He was addressing questions during an open forum of the 7th Management Association of the Philippines conference in Makati City on Tuesday.

Zobel said the group, which has been part of the two- or three-decade long consolidation in the industry through its unit Bank of the Philippine Islands, is always interested in opportunities that crop up.

"AIG and Philamlife are exceptional institutions that have served this country for many years. For different reasons they decided to put that product in the market, it makes sense that the Ayala group would be interested."

In an interview with ABS-CBN Business at the sidelines of the conference, he added that AIG's decision to put Philamlife on the auction block presented an opportunity that they at least had to evaluate.

He added, however, that they have not done any number crunching nor formalized their bid with the institutions tapped by AIG to handle and oversee the sale.

He said they just expressed their interest in Philamlife.

Opportunity

The sale of the biggest and the most profitable insurance company in the country is the Philippine’s first direct experience of the impact of the financial shakeup in the US.

While this initially made policy holders and investors of Philamlife nervous and concerned, the Philamlife sale has attracted a lot of interest in the business sector.

Zobel de Ayala is the executive of the second group that has expressed interest in Philamlife. The first was the Yuchengco group.

Philamlife's top honcho, Jose Cuisia, previously said there are close to 10 groups, both foreign and local, that have expressed their interest to buy whole or part of Philamlife.

Ayala Corp.'s announcement came as no surprise to financial analysts.

They generally agree that Philamlife is a good buy since it is a leader in the industry and it fits well in the insurance business of the Ayala group under unit, Ayala Life.

"It's expected that they'll (Ayala) be interested. Philamlife is a crown jewel. It's very attractive. I'm sure they did their numbers," said Astro del Castillo, First Grade Holdings managing director.

"It's also good news to AIG that a lot of companies are interested. This means it can get an even better deal than earlier expected," he added.

With more potential buyers swarming around Philamlife's assets for sale, one of the concesus is that interested parties may have to add more premium to their bid price to stand out.

In other words, the buyers would need a cash horde to afford and digest a mammoth firm like Philamlife. Analysts earlier said interested buyers would likely be forming consortiums among themselves.

Even Ayala Corp itself may need to find a partner. Claire Quiray of Accord Capital Equities Corp., said that Ayala Corp. may need to raise fresh funds for a potential acquisition since "There are several companies seeking to buy Philamlife."

Giant when combined

The Ayala family, one of Manila's elite, controls Ayala Corp, the Philippines' oldest commercial house of over 160 years. They have built a reputation of strength and stability in real estate, banking and finance, telecommunications and utilities businesses.

The Ayalas have been in the insurance industry since 1933, when earlier generations established the predecessor of Ayala Life Assurance, Incorporated.

Most of the Ayala group's insurance companies are housed under the group's banking arm, Bank of The Philippine Islands (BPI), which, in 2000 bought various small life and non-life insurance and re-insurance firms so it could tap on its branch banking network to sell these products.

The non-life insurance operation of the group are under subsidiary BPI/MS Insurance Corporation.

The life insurance operation under Ayala Life is the fourth largest in the country with assets of P12 billion, records from the Insurance Commission showed.

Philamlife, on the other hand, is the largest insurer in the country and the undisputed market leader in the life insurance sector with consolidated assets of up to P170 billion as of December 2007.

A potential merger of the Ayala group's insurance and Philamlife's business will catapult the Ayala family to the top of the heap.

The Ayalas are known to be prudent businessmen, yet pragmatic when there are opportunities to buy existing profitable companies to shortcut their growth trajectories. During the heydays of bank mergers in the early part of the decade, they aggressively bid for profitable banks, sealing BPI's slot in the top three.

Earlier, the Yuchengcos, another elite family in Manila, also expressed interest in clinching a stake in Philamlife.

Sold in 6 to 9 months

At an earlier press conference on Tuesday, Brian Murray, AIG's Managing Director for Research in Asia, said that AIG is likely to sell its valuable assets, including Philamlife, within six to nine months.

"We hope to do that sooner rather than later," he told reporters.

After AIG made public its survival strategy of selling profitable assets outside its casualty and property insurance business, assets in Thailand, Japan and the Philippines were immediately announced to be in the auction block.

Philamlife has total consolidated assets of P170 billion. Aside from insurance, it also has subsidiaries engaged in banking, asset management and outsourcing.

Philamlife is among the assets being sold by AIG to pay off its $61 billion debt to the US government. The emergency loan kept AIG, once the world's largest insurer, from going under after toxic mortgages led to massive losses.

as of 10/09/2008 4:52 PM