The Treasury Department has been planning to sell some of its shares for months, as the Obama administration has worked to return the big insurer to the private sector. But questions about the size and the price of the deal have mounted, as A.I.G.’s share price has been sliced in half this year.
No specific selling price was quoted by top company executives, who answered questions about the insurer’s planned return to the private sector at the company’s annual meeting. But the planned offering of 300 million shares would yield about $9 billion at the stock’s current price, much less than anticipated just a few months ago.
The Treasury, which now owns 92 percent of A.I.G.’s common stock, aims to sell 200 million of its 1.66 billion shares, leaving it with 77 percent of the company, according to an offering document filed Wednesday. At the same time, A.I.G. plans to sell 100 million new shares.
A person familiar with the company’s plans said some of the proceeds would be used to increase the company’s available cash and capital, allowing it to eliminate a line of credit from the Treasury.
Several factors have depressed the company’s shares. In recent months, A.I.G.’s biggest remaining operating unit, renamed Chartis, has posted losses on earthquake claims from Japan and New Zealand. It has had to bolster its reserves too.
The company’s share price has also fallen sharply since the issuance in January of a warrant that allowed shareholders to buy stock for $45 a share. The warrant had been announced in October to encourage investors to hold the stock while the Treasury executed a series of restructuring transactions. Until January, the value of the warrant was included in A.I.G.’s stock price.
“You’re now selling this stock at one-half of what it was selling for just a few months ago,” Kenneth Steiner, the owner of 600 A.I.G. shares, told the board at the annual meeting. “What’s happened here is a real shame and a real tragedy, and it’s only being made worse now by this dilutive offering.”
From a 2011 high of $61.18 in January, A.I.G.’s stock closed at $30.65 on Wednesday in regular trading, up $1.03 for the day.
Treasury officials have said that taxpayers will break even as long is A.I.G. can sell its stake for at least $28.72 a share. The price on the first tranche will be determined in part by demand as the company and its bankers begin a road show to market the shares. The big banks underwriting the deal are said to want a lower price, in hopes of maximizing how much they will make on the sale.
Mr. Steiner, the investor, said he considered it unfair for the company to announce stock offering terms suddenly at an annual meeting, depriving investors of information that they could analyze to decide whether to support the current management.
He said that the stock would be offered at two-thirds of A.I.G.’s book value, about $47 a share, “way below what most insurers would have sold their stock at.”
A.I.G.’s chairman, Steve Miller, said the board had decided to go ahead because a broader shareholder base would be helpful. The stock would then be less vulnerable to the sharp price swings that plague thinly traded stocks. That, in turn, could encourage more investors to buy, and the stock would eventually rebound.
He added that the Treasury’s portion of the sale was not dilutive, because it would not increase the number of shares outstanding — it would simply shift a block of shares from the government to many owners.
Along with paying down the Treasury line of credit, the company said that $550 million of its proceeds would go to settle a lawsuit filed by three Ohio pension funds in 2004.
The current chief executive, Robert H. Benmosche, said the company could not begin paying dividends to shareholders until all the Treasury’s holdings were sold. He suggested shareholders might recover some value as soon as 2012 or 2013, when A.I.G. could begin to buy back some of the shares now being put on the market.
Article source: http://feeds.nytimes.com/click.phdo?i=6282ab53dc4450196fec0703a8b9ed78
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