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U.S. Government Auditioning Bankers to Manage IPO in Its AIG Stake

Posted on 10 Jan 2011

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The U.S. government is auditioning bankers this coming week to manage a public offering of a chunk of its majority stake in insurer American International Group Inc., according to people familiar with the matter.

A request for proposal was sent out to banks and securities firms Thursday. Treasury and AIG officials plan to initially meet with representatives of 10 banks that are looking to play a role in the stock offering, people familiar with the matter said. The meetings are likely to be held in New York, one of them said.

The first sale of the Treasury's AIG shares to the public could take place in March or May, with May the more likely time frame, according to a person familiar with the plan. If the Treasury wants to sell another large chunk to the public after its first round, it will likely have to wait until late 2011, as major owners usually are held to a six-month lockup agreement following public sales of stock.

The Treasury will soon increase its stake in AIG to 92.1%, which has an implied value of more $70 billion, well above its cash investment of $47.5 billion during a government bailout of the insurer in 2008.

The Treasury is aiming to sell at least $15 billion to $20 billion of that amount in its first large public offering of AIG stock, according to people familiar with the matter. The exact size will depend on investor demand when the shares are being marketed to investors. The company is planning to sell up to $3 billion in new shares alongside the government in the first offering to bolster its liquidity.

AIG already is publicly traded, so the Treasury's sale will be considered a secondary offering, not an initial public offering, as was the case in General

Motors Co.'s November deal. But because the Treasury has such a large stake to sell and AIG has gone through a major restructuring, government officials and bankers are referring to the coming share sale as a "re-IPO" of AIG.

As in the case of GM, bankers can expect a small fee for their services. GM's IPO paid out 0.75%, the lowest percentage ever seen on any IPO; initial offerings normally bring fees of 3% to 7%, with the lower end of the range going to larger deals. Secondary stock sales have traditionally paid less than IPOs, so the final fee could be even smaller on AIG's offering.

Still, the size of the offering—and bragging rights—are driving Wall Street banks to compete for a spot on the AIG deal. Though GM's fee was low, the hefty amount sold meant that bankers still managed to pocket the most money in fees since Visa Inc. went public in March 2008.

Banks that recently agreed to provide unsecured loans to AIG via a new revolving credit facility may stand a good chance of winning a role in the IPO, analysts said. Banks involved in the credit facility include J.P. Morgan Chase & Co., Citigroup Inc. and Bank of America Corp., among others.