AIG Shares Rise 6 Percent after Reports of Life Insurer IPO

Published: Wed 14 Jul 2010

Wendy Blair

Yesterday, shares of embattled insurance titan AIG skyrocketed by more than six percent after initial reports indicated that the corporation's board intends to meet this week to consider a sale or initial public offering of AIG's Asian life insurance arm.

According to Reuters sources, an initial public offering is the likelier option for the insurer's Asian life insurance business AIA, after AIG turned down a bid for the business last month.

Members of the board will gather in New York today to talk about what AIG should do with AIA, the report indicated. AIG would neither confirm nor deny the report.

AIG has been selling of branches of its company in order to repay the $102 billion owed to United States taxpayers, after the floundering insurance company accepted a string of bailouts from the federal government after the financial crisis.

As one of AIG's biggest units, AIA is regarded as one of the insurer's most valuable assets, and the sale of AIA could reduce AIG's debt by one quarter.

However, AIG refused a bid for AIA from the UK insurer Prudential last month, after Prudential attempted to revise its offer from the $35.5 billion the companies agreed upon to $30 billion.

IPO vs. Sale

An IPO is unlikely to generate more than the $30 billion offered by Prudential, but such an offering is the next best thing considering the pressure the board of AIG is under to repay taxpayers after the bailout, explained David Merkel, the chief of Aleph Investments. Merkel is a former employee of AIG.

"AIG left themselves in the situation where they could no longer control their destiny, and now they're reaping the fruits of it," he commented.

Reports of bids for AIA from other companies have also emerged, including a story in the South China Morning Post on Tuesday that reported that four Chinese companies contacted AIG and the Treasury Department to offer a bid for AIA.

Neither the Treasury Department nor AIG would comment on the report.

On Monday night, the biggest private holder of the common stock of AIG reported in an official filing that it had raised its stake in the company.

The Fairholme Fund, headed by Bruce Berkowitz, recently purchased an additional 7.3 million AIG shares, according to an SEC filing. Fairholme now holds a total of 32.8 million AIG shares and is the second-biggest stakeholder after the United States government.