The U.S. Department of Treasury on Monday priced the secondary offering for the common stock of insurance giant American International Group, Inc. (AIG: Quote) at $32.50 per share for total proceeds of $18 billion, as the federal government further slashes its stake in the insurer.
"This offering, Treasury's largest to date, makes America whole on its investments in AIG plus a profit. We are close to achieving what most outside AIG thought unimaginable. The people of AIG never lost faith, kept working, and are grateful for being given the chance to make good on this goal," AIG President and CEO Robert Benmosche said in a statement.
The Treasury said it will sell a total of 553.85 million shares of AIG at $32.50 per share for total proceeds of about $18 billion. Meanwhile, AIG agreed to buy 153.85 million shares, representing about $5 billion of the expected proceeds. The remaining $13 billion will be raised by offering the remaining shares in a public offering.
According to a regulatory filing, AIG revealed that it will fund the share repurchase with $2 billion of proceeds from the sale of its stake in Hong Kong-listed Asian life insurer American International Assurance Group Ltd. (AAGIY) or AIA, and $3 billion of cash and short-term securities.
The offer price of $32.50 per share represents a marginal 2.4 percent discount to AIG's closing price of $33.30 on Monday. However, the offering of AIG common stock, par value $2.50 per share, will reap the Treasury a significant premium at its current elevated share prices compared to $28.73, which the Treasury reportedly says is the break-even cost for AIG shares.
The Treasury could also sell up to an additional 83.08 million shares or $2.7 billion shares of common stock of AIG to the underwriters for the offering to cover over-allotments, if any.
Following the completion of the offering, the Treasury would own only about 21.5 percent stake in AIG, or about 15.9 percent, if the over-allotment option is exercised in full. Prior to this offering, the Treasury owned about 53.4 percent of AIG's common stock outstanding.
The current secondary offering is one of the largest in the history of the U.S. stock market, and the largest among the sale of AIG common stock. The federal government would have now pruned its stake in AIG after five multi-billion offerings since May 2011 to 21.5 percent or 317.2 million shares. The first two offerings were priced at $29 per share, and the next two at $30.50 per share.
The New York-based troubled insurer was bailed out in 2008 with a total Federal government aid that rose to $182.3 billion in March 2009 after four credit lines were given, following losses caused by housing-linked assets. The U.S. government initially owned 79.9 percent of the company.
According to the US Treasury, the completion of the current offering will see the federal government having recovered a total of $194.7 billion, including principal and $18.6 billion as interest, fees, and other gains. The account represents a positive return of $12.4 billion, and the future sale of the remaining stake in AIG will provide an additional return to taxpayers.
The Treasury could be looking to unload its remaining stake in AIG by the end of 2012, and AIG executives have also reportedly revealed that it expects the government to be out of AIG by 2013.
In what is an election year, the Obama administration is looking to exit its largest $700 billion bailout provided during the economic downturn in late 2008. However, the federal government continues to hold large stakes in reportedly more than 900 financial institutions and corporations, including General Motors Co. (GM) and Ally Financial, Inc. (a former financial arm of GM).
AIG closed Monday's regular trading session at $33.30, down $0.69 or 2.03% on a volume of 42.57 million shares. In the past 52-week period, the stock has been trading in a range of $19.18 to $35.36.
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by RTT Staff Writer
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