American International Group, the huge insurer agreed to sell its Taiwan unit Nan Shan to an investor group led by Primus Financial (a Hong Kong based Financial services company) for $2.15 billion US. American International Group had to sell Nan Shan because they were bailed out by the U.S. government. The bailout package is worth up to $182.5 billion U.S. and in exchange, the U.S. government gets 80% ownership of the insurer. In order to repay the government aid, AIG had to sell its assets; therefore, selling Nan Shan was its only option.
Connection:
This is not a transaction that you would find in a small business, but it does relate to some of the transaction described in Chapter 2. This transaction is similar to the “purchase of land” transaction described in this chapter. During this transaction, Primus ( the company that bought Nan Shan ) would have to decrease their cash account because they had bought something. They would also have to increase their Land account (or purchase account) because of the purchase of Nan Shan. On the other hand AIG sold Nan Shan because they want to repay the government back; therefore, a possible transaction may be the decrease of AIG’s cash account and accounts payable account.
Reflection:
This was a huge and hard decision made by the American International Group. They had to sacrifice their assets (Nan Shan) in order to pay the U.S. government back. In my opinion, I think this was the right decision because in order to lower the debts owe, AIG needs to sell off some of their assets to cover their debts. Even though the cash received was small amount compare to the amount they owe, it is still better paying back a small amount instead of not paying back at all. Hopefully the economy would turn around in the future and AIG would be able to pay off its debt without selling its assets.
