Posted on 22 Mar 2010
Maurice R. "Hank" Greenberg, the former head of American International Group Inc., agreed to sell shares he holds in the struggling insurer to a UBS AG unit for $278 million.
In a securities filing Friday, Starr International Co., Mr. Greenberg's investment vehicle, said it would sell as many as 10 million AIG shares to UBS Securities LLC. The deal is split into four parts of 2.5 million shares each.
The structure, known as a variable prepaid forward sale, is designed to help Mr. Greenberg limit his exposure to volatility in AIG's share price. Shares of the company, 80%-owned by the U.S. government, closed Friday at $34.80, up 0.5%.
Variable prepaid forward sales are often made between an executive and a brokerage firm. Under the structure, the executive agrees to deliver a number of shares to the brokerage in the future in exchange for cash upfront. Those payments can equal between 75% and 90% of the shares' value when the deal was struck.
If the share price falls during the contractual period, the brokerage absorbs the loss. If it rises, the executive shares in the gains up to a specified point. Either way, the executive locks in value, minimizes losses and retains a shot at some gains. The executive also maintains voting rights for a time.
Two of Starr's lawyers weren't available to comment on the deal. A UBS spokesman declined to comment.
Such deals often are split up because they may involve a large number of shares that have the potential of impacting the market, said Mark Leeds, a lawyer familiar with these financial products. UBS is one of Mr. Leeds's clients, but he wasn't involved in the deal with Mr. Greenberg.
Under the terms of the agreement, Starr International shoulders no risk if the shares fall below about $31.22 and will receive additional payments only to about $46.83 per share. UBS will pocket gains if the shares trade above about $46.83.