AIG to Offer Some Shares of Mortgage Insurance Unit to Public -- Update
January 22 2016 - 7:27PM
Dow Jones News
By Leslie Scism
American International Group Inc. plans to offer shares of its
mortgage insurance unit to the public while retaining a large
majority interest in the business, according to a person familiar
with the matter, a move that signals the insurance conglomerate
likely won't satisfy investors who are calling for the company to
break into three parts.
Separately, AIG is finalizing a deal to sell its network of
broker-dealers, people familiar with the matter said.
The deals are part of a broader effort to slim down, an effort
that began when the insurer nearly collapsed into bankruptcy
proceedings before receiving one of the biggest bailouts of the
financial crisis, since fully repaid. Recently, AIG has come under
increasing pressure to take more drastic steps to improve results.
Activist Carl Icahn and fellow billionaire investor John Paulson
have called for the company to break into three parts.
AIG Chief Executive Peter Hancock has said that while he
understands many investors' desire for urgent action to boost the
company's overall financial results, a breakup isn't in
shareholders' best interests.
Analysts expect the mortgage insurance unit, one of AIG's
fastest-growing businesses over the past couple of years, to be
valued at between about $5 billion and $7 billion. The
broker-dealer sale would total hundreds of millions of dollars,
analysts say. AIG has a market value of about $70 billion.
While AIG has been aggressively buying back its shares with the
cash it is generating from operations and asset sales, its
profitability lags behind big rivals like Travelers Cos.
Mr. Hancock is set to update investors on the company's strategy
in a session Tuesday morning, and the two possible divestitures are
expected to be discussed.
By maintaining a majority stake in the mortgage insurance unit,
AIG can continue to book some of its earnings. At the same time,
executives believe the transaction will show the company's
commitment to cutting back to core operations, one of the people
familiar with the matter said.
AIG's primary focus is property-casualty insurance sold to
businesses globally, and life insurance and retirement services
sold mostly in the U.S. Before the crisis, it was a leading seller
of life insurance in Asia, among many other far-flung
operations.
Private-equity firm Lightyear Capital is a buyer in the
broker-dealer sale, according to the people familiar with the
matter. It wasn't clear if other buyers are involved.
A Lightyear Capital spokesman declined to comment Friday.
AIG's broker-dealer network is known as AIG Advisor Group, with
more than 5,000 financial advisers. They work through four
different firms: SagePoint Financial, FSC Securities Corp.,
Woodbury Financial and Royal Alliance.
In a memo to employees in November, AIG said it had "received
several inquiries" from potential acquirers about the Advisor
Group.
An AIG spokesman said Friday that the company "continues to take
steps to narrow its focus, improve its financial performance, and
return capital to shareholders," and that it will disclose more on
Tuesday.
At Tuesday's strategy update, many analysts are anticipating
that Mr. Hancock will announce more aggressive cost-cutting than
the company has under an existing plan. The existing plan calls for
the company to take out a total of $1 billion to $1.5 billion in
costs by 2017, which amounts to about 3% to 5% a year of net
general operating expenses, over three years.
AIG's possible divestiture of the mortgage insurance unit was
reported by The Wall Street Journal in October. Reuters reported
earlier Friday on the decision to proceed with a partial
divestiture.
Write to Leslie Scism at leslie.scism@wsj.com
(END) Dow Jones Newswires
January 22, 2016 19:12 ET (00:12 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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