AIG said to be near $35 billion Asia deal

American International Group Inc., majority owned by the U.S. government after a massive bailout, is close to a $35.5 billion deal to sell its Asian life insurance operations to Britain’s Prudential PLC, according to a online report published Sunday.

The Wall Street Journal’s online edition, citing people familiar with the matter, said AIG (AIG, Fortune 500) will sell its American International Assurance Ltd. (AIA) to the British company for $25 billion in cash and $10.5 billion in stock, including preferred shares and options.

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The Journal said the U.S. government supports the deal. It said its source said that under terms of the deal, AIG would pay $16 billion of the cash component back to the government to buy back preferred shares given in the bailout.

The remaining $9 billion in cash would be used to pay down the more than $25 billion outstanding under a credit facility from the New York Fed, the source told the Journal.

The deal would be another step in getting AIG out from the nearly $132 billion it borrowed from the federal government beginning in 2008 to avoid collapse.

The Journal, which has reporting on talks between Prudential and AIG for the past few days, said the deal could be announced as early as Monday morning.

AIA markets life insurance throughout Asia and the South Pacific. AIG has said AIA has about 20 million customers throughout the region.

On Friday, AIG announced it lost $8.9 billion in the fourth quarter of 2009, largely due to costs associated with selling off large stakes in its insurance businesses to reduce the debt it owes to taxpayers.

The majority of AIG’s fourth-quarter loss came from its December sale of large stakes in AIA and Alico, another foreign life insurance businesses, to the U.S. government. In exchange for those transactions, the Fed reduced the amount AIG has to repay taxpayers by $25 billion. AIG said it took a $5.2 billion charge for that sale last quarter.

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