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AIG's 'Re-IPO' Remains on Track

Source: WSJ - Serena Ng & Randall Smith

Posted on 24 May 2011

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The Wall Street Journal reported on Monday that according to people familiar with the matter the long-awaited $9 billion stock offering from American International Group Inc. (AIG)  and the U.S. Treasury is on track to price late Tuesday despite recent market weakness.

But the market downturn appears to have dimmed the chances for AIG and the Treasury to boost this month's offering, or "re-IPO," beyond $10 billion, the people said.

AIG's publicly traded shares on Monday fell 82 cents, or 2.7%, to $29.98 amid a broader stock-market selloff. The shares have mostly hovered around $30 to $31 since the government-controlled insurer and its majority shareholder launched their offer of 300 million shares on May 11.

Since then, global markets have been turbulent, and stocks world-wide slid Monday, reflecting investors' growing concerns about Europe's debt problems.

Investment banks coordinating the sale have so far gotten indications of interest from investors in the U.S. and abroad that cover roughly the whole offering, according to people familiar with the matter. The people indicated the stock sale is likely to take place on schedule unless there is a big selloff on Tuesday.

Investors are expecting the deal to be priced between $29 and $30 per share, at a discount to the prevailing market price of AIG's stock. The Treasury is aiming to sell above its $28.70 "breakeven" price per share on its 92.1% stake in AIG.

Of the 300 million shares on offer, 200 million are being sold by the U.S. government and 100 million shares are to be issued by AIG. The Treasury can also sell an additional 45 million shares if underwriters exercise an option in response to investor demand, which would bring the total deal to about $10 billion in size and reduce the government's stake in the company to about 75%.

Government and AIG officials have little interest in selling the shares at less than what the Treasury effectively paid for them.

But they also want to get the first sale completed so that more AIG shares will trade publicly and provide a path for the U.S. to completely exit its ownership in the bailed-out insurer over the next year or so.

Top AIG executives are on the tail end of a roadshow to promote the offering, and are scheduled to meet investors in Chicago on Tuesday before the roadshow ends and the offering is priced in the late afternoon or early evening.

Investors and analysts who have heard the company's pitch and financial goals over the past two weeks say there is some skepticism that the New York-based insurer will be able to meet its targets and improve its profitability over the next few years, but they note that at current levels the stock price appears to have limited downside. The shares are currently trading at about two-thirds the company's book value, a measure of its assets minus liabilities.

"This is still a company on the mend … but I think a lot of the risks inherent to AIG's turnaround story are already reflected in the price," said Cathy Seifert, an analyst at Standard & Poor's Equity Research who has a "buy" rating on the shares.