Sept. 22 (Bloomberg) -- American International Group Inc. shareholders, who saw their holdings decline by more than 90 percent this year, met today to discuss alternatives to an $85 billion U.S. takeover that may dilute their stakes.

Maurice ``Hank'' Greenberg, the former chief executive officer of the insurer, was expected to be represented at the meeting, said his lawyer, David Boies. Investors including former board member Eli Broad, Shelby Davis of Davis Selected Advisers LP and Bill Miller of Legg Mason Inc. were also expected to send representatives, said a person familiar with the planning.

``To pull this off strikes me as terrifically tricky,'' said James Cox, a professor at Duke University who specializes in securities law. ``A defensive takeover by investors of their own firm, on this scale, has never happened before.''

The insurer, crippled by losses tied to the worst U.S. housing slump since the Great Depression, agreed to turn over control to the government last week in exchange for a federal loan of as much as $85 billion. The original terms said the U.S. would get warrants equal to a 79.9 percent stake, and that shareholder approval would be sought. A new description filed Sept. 19 omitted any mention of warrants or a shareholder vote.

New York Stock Exchange rules require that companies hold shareholder votes to issue more than 20 percent in new shares, unless the firms can claim extraordinary circumstances, said Cox.

``AIG must have had some understanding with the governance people at the NYSE,'' Cox said.

Shares Gain

AIG gained 87 cents, or 23 percent, to $4.72 at 4:07 p.m. in New York Stock Exchange composite trading. The New York-based insurer sold for more than $72 in December 2006.

The investor meeting on alternative plans was ``being organized by other people,'' said Boies, whose client controlled about 11 percent of AIG shares through two investment firms and personal holdings before the government takeover. The meeting, in New York City, was reported earlier by the Wall Street Journal.

New York Comptroller Thomas DiNapoli's office was to be represented because New York held 10.8 million AIG shares in a retirement fund as of Sept. 12, said his spokesman Jim Fuchs. The top 12 or 14 shareholders including Dodge & Cox were also expected to attend, said the person familiar with the planning. The person declined to be identified because the meeting is private.

Representatives for Broad and Davis didn't immediately return calls seeking comment. Dodge & Cox declined through a spokesperson to comment. Miller declined to comment, spokeswoman Mary Athridge said.

New AIG CEO Edward Liddy plans to repay the loan before the two-year deadline and told employees Sept. 18 he may decide which assets to sell within two weeks.

Plane Leasing

AIG's plane-leasing unit will be ``an interesting business to sell,'' Liddy told CNBC today.

``There's an awful lot of leverage in it, but I think we can do this in a smart way,'' Liddy said. International Lease Finance Corp., the biggest lessor to airlines by aircraft value, drew down $6.5 billion in credit lines last week.

Liddy said AIG will become a smaller and ``nimbler'' company after assets are sold to repay the loan. He may have a list of everything for sale, and possibly announce completed transactions, within 7 to 10 days, Liddy said.

Separately, Robert Willumstad, the AIG CEO replaced as part of the U.S. takeover last week, rejected a $22 million severance payment he was entitled to under his contract, said a person familiar with the situation.

No Pay

Willumstad didn't take the money because his three-month tenure ended before he could unveil a turnaround strategy and because investors and employees had lost so much on AIG stock, said the person, who declined to be identified because the refusal hasn't been announced yet. Willumstad informed AIG of his decision in an e-mail to Liddy, the person said.

``He stepped up to help AIG under difficult circumstances and we greatly appreciate his efforts,'' said Peter Tulupman, an AIG spokesman.

The insurer, the biggest in the U.S. by assets, already borrowed $28 billion as of Sept. 17, the Federal Reserve said last week, even though full specifics of the accord with the government haven't been publicly released. The revised terms still give the U.S. ``a 79.9 percent equity interest in AIG,'' the insurer said in its new filing. ``The corporate approvals and formalities necessary to create this equity interest will depend upon its form,'' the filing said.

Greenberg, who saw the value of the AIG stake he controls plunge by more than $5 billion this month, has said the takeover might have been avoided if AIG got a bridge loan, tapped private investors and sold assets. Greenberg, 83, sent a letter to Willumstad before the latter was replaced offering to help and complaining that his earlier offers had been rebuffed.

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

Last Updated: September 22, 2008 16:41 EDT