American International Group, Inc. (NYSE: AIG) is one step closer to being out of debt with Uncle Sam and the U.S. taxpayers. Two recent transaction have AIG now with about $37 billion raised that will be used to repay the government. The first transaction is the sale of one insurance subsidiary, American Life Insurance Company (ALICO); the second is the initial public offering of AIA Group Limited for its Asian insurance operations.
The ALICO sale to MetLife, Inc. (NYSE: MET) closed today for roughly $16.2 billion. This is not a true $16.2 billion as it could be more or could be less depending upon market conditions. Approximately $7.2 billion was the cash component and the remainder was in securities issued by Metlife. Those securities came to 78.2 million common shares of MetLife, plus about 6.9 million shares of contingent convertible preferred stock along with 40 million equity units. AIG is expected to sell the shares and securities after certain lock-up periods, but if not it appears as though AIG would be the largest shareholder of MetLife.
The initial public offering proceeds from AIA were roughly $17.8 billion, or about $20.5 billion after the overallotment portion of the deal was exercised.
Sales are sales, even if the US taxpayer is a long way off from noting having AIG as a borrower. The two deals alone raised close to $37 billion, and more than $27 billion of that was in cash. CEO Bob Mosche pledged to stay on until the government is paid back in full. Unfortunately, that pledge came before he knew about having cancer. The company recently announced a succession plan that would be implemented if needed.
These funds are being placed in an escrow fund with the Federal Reserve Bank of New York until AIG’s recapitalization plan closes before the end of the first quarter of 2011. The recapitalization plan seeks to accelerate the bailout funds which came to more than $180 billion, while paying back the New York Federal Reserve and keeping the Treasury Department’s 92% stake.
AIG shares have been stuck of late and the small gains of 0.35% to $42.16 compare to a 52-week range of $21.54 to $45.90. That high is a not a fresh high as that was the high put in during April when shares were rallying and that was after the lows were being seen in late-February and early March.
Positive developments seem to continue here. Just don’t assume for a moment that this means that AIG is off the hook entirely from such asset sales. There may be a plan to get Uncle Sam paid off via a large share sale, but that is a ways off.
JON C. OGG
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