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AIG Stock Sale Garners Interest from Investors

Source: WSJ -Randall Smith & Serena Ng

Posted on 16 May 2011

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According to people familiar with the matter, underwriters for the $9 billion stock sale by American International Group Inc. and the U.S. Treasury have indications of interest from investors for about half the offering.

Most of the indications of interest, which were at an average price of about $30 a share, were obtained before the launch of the formal "roadshow" for the sale, which began in Europe late last week, the people said.The roadshow will bring AIG's management this week to major cities in the U.S. where most of its potential investors are located.

AIG and the U.S. last Wednesday commenced a public offering of 300 million shares, two-thirds of which belong to the government and are being sold to repay the insurer's 2008 bailout.

Treasury would profit from the sale if it can sell its shares above $28.70. Shares closed Friday at $30.42, down 75 cents or 2.4%.

Prior to the start of the roadshow, bankers conducted what is known as a "wall-crossed offering," where financial information about the company was provided to investors who signed confidentiality agreements, according to people familiar with the matter.

These investors who "went over the wall" told bankers how many shares they would be willing to buy at what prices, subject to market conditions. The indications aren't binding commitments.

The $30 price is just below where the stock was trading during this stage of the marketing. When the market price for the roughly 145 million shares that already trade publicly dipped below $30 early last week, AIG officials debated postponing the sale, but ultimately agreed with Treasury to proceed with the offering.

The early investor interest suggests the government has a good chance of turning a profit on the first leg of the AIG sales. Treasury currently owns 92.1% of AIG, or 1.66 billion shares, which it plans to sell off over at least a year.

The smaller-than-expected size of this month's AIG stock offering, which some investors had earlier envisioned at over $20 billion, may help create an impression of "scarcity" which could help fuel demand in the coming days, the people familiar with the sale said.

While Treasury would have preferred to sell a larger number of shares at a high price in the first offering, U.S. and AIG officials opted to roll out a smaller share offering to improve their chances of making money for taxpayers on the sale.

Getting a sale done this month would also significantly increase the number of shares in the hands of private investors from just 7.9% of the company currently to roughly 25% of its outstanding shares. AIG officials have blamed the small number of shares currently traded publicly for big swings in its stock price.

AIG's top management is scheduled to meet with investors in New York on Monday and Tuesday, followed by Boston, San Francisco, Los Angeles and the mid-Atlantic later in the week. The offering is expected to be priced early next week after the roadshow concludes with stops in Minneapolis and Chicago.

The offering is being led by Bank of America Merrill Lynch, Deutsche Bank AG, Goldman Sachs Group Inc., and J.P. Morgan Chase & Co. The planned sale of 300 million shares includes an option to increase the number of shares sold by 15%. It is possible that the offering size could be increased modestly, depending on investor interest and market conditions, people familiar with the matter say.

An initial public offering led by the U.S. Treasury of stock in General Motors Co. last November used such a playbook, starting with a proposed sale of as little as $10.9 billion in common shares which was later boosted to $18.2 billion in response to investor demand.