Posted on 13 May 2011
In an online pitch to investors for its stock offering this month, American International Group Inc. (AIG) describes its current valuation as "compelling" and lays out how the company intends to boost its profitability over the next few years.
In a video accompanying a 40-page slide show describing AIG's attributes, businesses and financial goals, Chief Executive Robert Benmosche said "there is no more crisis" for the bailed-out insurance company, which now has "lots of growth opportunities," in his view.
Alluding to recent tensions over the size and potential price of the stock offering that AIG and the U.S. Department of the Treasury launched this week, Mr. Benmosche said in the video: "Our sense is we have an incredible valuation opportunity here and we're just not going to give it away.
"If we don't get the value today, then we're going to get the value tomorrow... We're not going to give 100% of the value away and sell it too cheap," Mr. Benmosche said.
An AIG spokesman did not immediately comment.
Top AIG executives are currently on a road show to promote a public offering of 300 million shares. The offering commenced on Wednesday and is expected to price around May 24. Some 200 million of the shares on offer are to be sold by the Treasury, which owns 1.66 billion AIG shares, or 92.1% of the company after having rescued it from the brink of collapse in September 2008.
Investors earlier expected this month's offering to be at least double its current size of roughly $9 billion, but Treasury and AIG opted for a smaller sale to improve their chances of earning a profit for taxpayers on Treasury's $47.5 billion investment in the company. The shares need to be sold at above $28.70 apiece for Treasury to make money.
AIG's publicly traded shares on Thursday rose 52 cents, or 1.7%, to $31.17. Investors expect the offering to be priced at a discount to AIG's market price.
Company and government officials both are eyeing gains for taxpayers from the share sale, and Treasury may pull the deal if the price most investors are willing to pay doesn't meet their expectations, according to people familiar with the matter.
Top AIG executives are now in Europe meeting potential investors, and will next week meet investors in New York, Boston, San Francisco and other major U.S. cities to promote the company and explain its performance and financial goals to them.
In its online roadshow presentation, AIG touts its position as a large global property and casualty insurer whose clients include a majority of America's and Europe's biggest companies, and details the profit record and growth potential of its domestic life insurance and retirement services business, SunAmerica Financial Group.
The presentation says the company has "compelling valuation at current [book value per share] of $43.49." Book value is a measure of a firm's assets minus its liabilities, and the net book value of AIG's operating businesses is $34.87 per share, according to the slide show.
The company also lists other "valuable financial assets," that are included in its book value, such as a 33% stake it still holds in pan-Asian life insurer AIA Group Ltd and the fair market value of its interests in a vehicle that holds mortgage securities AIG previously insured. AIG also has billions of dollars in deferred tax assets, which will help it save on taxes in the coming years.
Unlike many other large insurers, whose share prices are close to their book values, AIG's stock currently trades at a steep discount to its book value. Analysts have noted that AIG's return-on-equity, a measure of the company's profitability, is much lower than that of its peers.
AIG's presentation says the company plans to boost its return-on-equity to over 10% by 2015 from around 6% during 2010, and expects to achieve this by growing its insurance business globally, improving investment income, redeploying billions of dollars in capital and cutting annual expenses significantly.
The presentation also notes that AIG has "de-risked" its balance sheet and unwound the bulk of its derivative contracts since the financial crisis, added to the reserves of its Chartis property and casualty-insurance unit and repaid its taxpayer debt ahead of schedule. Chartis's focus is now on achieving "higher growth in more profitable businesses," it states. AIG's goal is to grow overall earnings per share in midteens percentage terms on average through 2015.
An investor who reviewed the online presentation said AIG is trying to communicate where the company is now and what changes it plans to make to hit its growth targets, and if the company can boost its ROE to above 10%, its stock ought to trade close to is book value.
On Wall Street, the few analysts who cover AIG have widely differing views on how much the shares are worth. Paul Newsome, an analyst at Sandler O'Neill + Partners, has a 12-month price target of $40, while Cliff Gallant, an analyst from Keefe, Bruyette & Woods who has been bearish on AIG's prospects, has a $23 target. Dowling & Partners Securities, a Connecticut-based boutique firm that specializes in insurance research, recently estimated the sum of AIG's parts is about $35 per share, before factoring in a discount for a share offerin