American International Group Inc. (AIG) formally announced a plan to sell at least 300 million shares, a stock offering far smaller than originally envisioned.
The company didn't set a price for the shares in a statement or prospectus released early Wednesday. The stock closed Tuesday at $29.62, valuing the offering at about $8.9 billion.
The share sale will include at least 200 million shares held by the U.S. Department of Treasury, a fraction of its 1.66 billion shares that amount to a 92.1% ownership stake in the bailed-out insurer.
Treasury is also granting underwriters on the deal an option to buy up to 45 million more shares to cover over-allotments, if any, AIG said in the statement.
AIG will offer another 100 million shares. It said it would use $550 million of the proceeds to fund part of a previously disclosed legal settlement, and use the balance for general corporate purposes.
The share sale will be the first of many for Treasury, and plans for the offering have been widely watched as a test of whether the government will be able to sell its stake in the company at a profit. Its break-even price is about $28.70 a share.
The 200 million to 245 million shares to be sold by Treasury represent between 12% and 15% of the government's stake.
The size of the first share sale is far smaller than what officials had once hoped for. The Wall Street Journal reported Tuesday that discussions about the potential offering had earlier ranged from $7 billion to $25 billion, depending on investor demand and market conditions.
The announcement follows a meeting Tuesday in which the insurer's board debated whether to postpone the long-planned offering due to recent weakness in AIG's stock price, the Journal said.
The company is set to hold its annual shareholders meeting later Wednesday, and a "road show" to promote the shares is expected to begin afterwards.
The size of the offering may be increased if demand for the stock appears strong during the road show, the Journal said, adding that the new issue is due to be priced and sold around May 24 and more share sales are expected over time.
AIG shares slid 0.24% to $29.55 in pre-market trading after the sale was announced. The decline continues a drop of nearly 39% for the shares since the start of the year.
The combination of disappointing 2010 financial results by AIG and investor anticipation of the tens of billions of dollars in shares that the government needs to unload over time has weighed on the share price and dimmed prospects for the first stock sale.
BofA Merrill Lynch, Deutsche Bank Securities, Goldman Sachs, and J.P. Morgan Securities LLC are serving as joint global coordinators, and Barclays Capital, Citi, Credit Suisse Securities LLC, Macquarie Capital, Morgan Stanley, UBS Investment Bank, and Wells Fargo Securities are serving as joint bookrunners for the offering