AIG Fights Icahn on Breakup

American International Group Inc. (NYSE: AIG) plans to sell its broker-dealer network, spin off part of its mortgage-insurance unit and slash costs. So said CEO Peter Hancock in a strategy update Tuesday, as pressure mounts from activist investor Carl Icahn. The company has committed itself to returning $25 billion to shareholders over the next two years and taking other steps to enhance shareholder value.

The company’s board of directors has approved the sale of the AIG Advisor Group to private equity firm Lightyear Capital and Canadian pension fund manager PSP Investments. The sale price was not given, but AIG expects the transaction to close in the second quarter of 2016.

AIG also said it expects to spin off about 19.9% of its United Guaranty in mid-2016 as the first step in a full spin-off of the business.

Some $1.6 billion in cost savings over the next two years will reduce operating expenses by 14%. AIG said it expects the savings to be driven by an acceleration of current initiatives to “rationalize the Company’s global structure.” To that end, AIG also announced nine “modular” business units that will allow the company to de-centralize decision-making and “allow for migration to a more variable cost structure.”

AIG plans to return $25 billion in capital to shareholders from a combination of improved operating performance, divestitures, reinsurance transactions, a shift in asset allocation, a modest increase in leverage and the release of capital over time from low-earning legacy assets. The company expects to accomplish this over the next two years “without compromising the utilization of the Company’s deferred tax assets.”
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But the company will not fully break itself into pieces, according to its non-executive chairman, Douglas M. Steenland:

After careful consideration, AIG believes that a full breakup in the near term would detract from, not enhance, shareholder value. A lack of diversification benefits would reduce capital available for distribution, and there would be a loss of tax benefits. Being a non-bank SIFI [systemically important financial institution] is not currently a binding constraint on return of capital.

Shares traded up about 1.2% at $56.02 in late morning trading Tuesday. The stock’s 52-week range is $48.68 to $64.93.