American International Group Inc. announced Monday a definitive agreement to sell American Life Insurance Co. to MetLife Inc.

MetLife [MET] will pay approximately $15.5 billion, including $6.8 billion in cash and the remainder in equity securities. The price of the deal, which is expected to close by the end of this year, is subject to closing adjustments.

AIG [AIG] said that the cash from the deal will be used to reduce the liquidation preference of the Federal Reserve Bank of New York in the special purpose vehicle formed by AIG and the Federal Reserve Bank to hold the interests in ALICO.

“This sale is an important step toward repaying the government,” said Harvey Golub, the chairman of AIG’s board of directors. “ALICO is a unique international life insurer, and we view this as a terrific combination that will further enhance the company’s potential over the long term. With this sale of ALICO, along with the sale of AIA to Prudential plc announced last week, we are on track to generate approximately $50.7 billion from these two transactions alone, consisting of approximately $31.5 billion in cash to repay the FRBNY, plus another approximately $19.2 billion in securities that we will sell over time to repay the government. In addition, both sales give AIG greater flexibility to move forward with our restructuring and rebuilding efforts, and focus on enhancing the value of our key insurance businesses,”

On Dec. 1, the Federal Reserve Bank received preferred interests in ALICO with a liquidation preference of $9 billion. Accordingly, when the sale closes the Federal Reserve Bank will receive approximately $6.8 billion in cash, and the ALICO special purpose vehicle will keep the rest, which includes 78.2 million shares of common stock, 6.9 million shares of newly issued participating preferred stock convertible into 68.6 million shares of common stock, and 40 million equity units of MetLife with a liquidation preference of $3 billion.

According to a press release, the ALICO special purpose vehicle plans to monetize the MetLife securities over time, subject to market conditions, following the lapse of an agreed-upon minimum holding periods.

 “Our entire organization is excited about this transaction,” said Rodney O. Martin Jr., ALICO’s chairman and chief executive officer. “MetLife is a well-respected, financially strong institution in which our customers, distributors, and employees can have confidence. We look forward to a smooth transition and a bright future as part of MetLife’s International Business team, combining our global footprints and successful business models to create an unrivalled global life insurance franchise.”

ALICO, which was founded in 1921, is a multinational life insurer that services consumers and businesses. It has 60,000 points of distribution, including agents, brokers and financial institutions; 12,500 employees across more than 50 countries; and 20 million customers worldwide. As of Dec. 31, 2008, ALICO had $89 billion in assets under management.