SUNAMERICA CHIEF HAS NO AIG ON FACE: SALE VALUES ELI BROAD STAKE AT $2 BILLION –AND HE KEEPS HIS JOB

In “Bonfire of the Vanities,” Tom Wolfe’s satiric portrait of 1980s Wall Street , any respectable Master of the Universe had at least a “unit” — shorthand for $100 million — under his crocodile belt.

Last week, Eli Broad, SunAmerica Inc.’s chairman and chief executive, racked up 20 of them.

After three weeks of secret negotiations, 65-year-old Mr. Broad, who throughout the financial services merger frenzy has publicly insisted his variable annuities marketing machine was not for sale, agreed to sell the Los Angeles company to global insurance giant American International Group.

Under the deal, which is slated to close by early next year, SunAmerica shareholders will get 0.855 of an AIG share for each of their shares. Based on AIG’s closing price of $94.63 Wednesday before news of the deal broke, the transaction is worth $17.8 billion.

Since Mr. Broad is SunAmerica’s largest shareholder — he and his family control 15% of the company’s stock — his stake in the combined firm is worth about $2 billion.

Mr. Broad’s long-held insistence that SunAmerica was not for sale may have been a stroke of marketing genius that ultimately helped him sell the company at a whopping six times book value. Throughout the 1990s bull market, he has rebuffed suitors offering to pay a premium, while privately flirting with the possibility of a sale.

Mr. Broad says he and AIG chief executive Maurice “Hank” Greenberg, 73, who is also considered one of the shrewdest minds in the insurance business, have a longstanding friendship and “talked about the virtues of our various companies” over occasional drinks during the last several years.

“We weren’t all that interested” in a sale to AIG, says Mr. Broad.

But about three weeks ago, Mr. Broad says, he decided that such a marriage would make “long-term strategic sense” because of AIG’s vast global distribution — including a strong presence in Asia, a market SunAmerica has been eying — and its product diversity.

The deal gives New York-based AIG, which generates about 60% of its income from business abroad, a strong presence in the booming U.S. retirement savings market, including the lucrative variable annuity business — where SunAmerica ranks No. 7.

AIG is best known for its global commercial property-casualty and life insurance business, particularly in variable life, which is expected to be the next hot insurance line. Its 1997 net income was up 15% to $3.3 billion, but some analysts have expressed concerns about excess capacity and relentless price competition in the property-casualty business and the impact of the Asia crisis on the firm’s earnings growth.

“It was a convergence of a lot of things and a mutual respect for one another,” says Mr. Broad, explaining his decision to sell SunAmerica.

In the long run, though, Mr. Broad may have had little choice, although company officials say the firm was under no pressure to sell.

SunAmerica has been a darling among Wall Street analysts, but concerns have begun to mount recently over whether it could continue its stellar 30% annual earnings growth

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SunAmerica’s charioteer cleans up

with such an intense focus on variable annuities. They accounted for almost 50% of its $5.3 billion fiscal 1997 sales.

As an independent, SunAmerica faced tough competition from companies with deep pockets like Hartford Life Inc., foundation of the Hartford Financial Services Group Inc., and the Equitable Cos. Inc., part of the French Axa group.

And the rapid pace of mergers and acquisitions in financial services — especially the pending Travelers and Citicorp merger — didn’t make things any easier.

“A lot of other annuity companies have big daddies backing them up,” says Peter Azcue, a senior insurance analyst at New York-based Value Line. SunAmerica “probably thought that (the merger) was the best way not just to succeed, but to do even better than they were before.”

There’s little overlap between the two businesses, so the deal is not expected to result in significant job losses. SunAmerica will continue to operate from Los Angeles and won’t change its name, officials say.

What’s more, the merger isn’t expected to force radical changes in SunAmerica’s business plan. It will continue aggressively to acquire broker-dealer firms to build its distribution network, but now it has access to cheaper capital, thanks to AIG’s triple A rating.

Of course, it will begin selling AIG’s products, including variable life contracts, through its network of 9,400 reps. SunAmerica also expects the deal to make it a bigger force in the institutional market — including the nonprofit 403(b) sector — because of AIG’s strong reputation.

“We’re going to stick to our knitting,” says Jay S. Wintrob, SunAmerica’s vice chairman and the leading internal candidate to replace Mr. Broad eventually. (The two men snared seats on the AIG board.)

That’s fine with AIG’s Mr. Greenberg, who says he’s skeptical of mergermania. “Many of the deals being done today,” he said last week, “are so culturally dissimilar that you spend more time internalizing companies than running (them).”