American International Group Inc (NYSE:AIG) has decided to restructure, but not in the format that activist investor Carl Icahn recommended. In the announced restructuring plan, AIG will spin off and partially sell two of its businesses and reorganize its remaining operations in a way that paves way to take them public or sell them in the future. Icahn on his part favored splitting of AIG into three standalone companies, claiming that such an arrangement would maximize shareholder returns.
It is no clear whether the push and pull between AIG’s CEO, Peter Hancock, and Icahn will continue now that the favored restructuring format doesn’t meet the latter’s requirement. The one thing that doesn’t impress Icahn with AIG’s present corporate structure is that it puts the insurer in the category of systematically important financial companies in the U.S. That means that the regulator requires the company to maintain a higher capital cushion than what Icahn deems necessary. If the business were split up into three independent units, Icahn says its capital burden would reduce, allowing the company to return more value to shareholders.
However, Hancock has refused to buy Icahn’s idea and the closest he appears to be willing to breakup AIG is drop a few businesses and restructure the remaining ones.
What’s AIG separating?
American International Group Inc (NYSE:AIG) plans to sell its broker-dealer business called AIG Advisor Group. The business will be sold to PSP Investments and Lightyear Capital for a value that has not been disclosed. In another measure, AIG intends to spin off a portion (19.9%) of its mortgage insurance arm, United Guaranty Corp, later this year. the partial spin off is expected to set the stage for a complete separation of the business in future.
Whatever remains of American International Group Inc (NYSE:AIG) after the two businesses are separated will be restructured in a format that will allow the company to take them public or sell them someday. AIG’s restructuring is expected to save $1.6 billion in costs.
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As part of enhanced shareholder returns, perhaps to cool Icahn’s agitation, American International Group Inc(NYSE:AIG) has promised to return at least $25 billion to its shareholders in the next 24 months.