AIG May Be Preparing to Sell $510 Million Blackstone Stake

American International Group Inc., the insurer that is divesting assets to repay billions of dollars in U.S. government aid, may be preparing to sell a $510 million dollar stake in Blackstone Group LP.

AIG, based in New York, notified Blackstone earlier this month that it will convert 35.7 million Blackstone partnership units into common shares, according to a Schedule 13G filed Dec. 17 with the U.S. Securities and Exchange Commission. Blackstone common shares, unlike the partnership units, trade on the New York Stock Exchange.

AIG, led by Robert Benmosche, is selling assets to repay a $182.3 billion U.S. rescue. AIG reaped a combined $36.7 billion by divesting its two largest overseas life-insurance divisions, AIA Group Ltd. and American Life Insurance Co., the firm said last month.

In September, the insurer agreed to sell two Japanese units for $4.8 billion, and Benmosche is seeking a buyer for Nan Shan Life Insurance Co. of Taiwan.

Mark Herr, an AIG spokesman, and Peter Rose, a spokesman for Blackstone, declined to comment.

AIG’s investment in Blackstone dates to July 1998, when the insurer announced that it would pay $150 million to acquire a 7 percent stake in the buyout firm, formed by Peter Peterson and Stephen Schwarzman in 1985 to provide merger advice. At the time, AIG also committed $1.2 billion to Blackstone buyout funds, the first of which was formed in 1987.

December Sale

In tandem with its June 2007 initial public offering, Blackstone said its existing owners, including Schwarzman and Peterson, would receive about $4.57 billion in cash and 847 million units in what are now four holding partnerships for the buyout firm’s operations. AIG was slated to receive 48.8 million partnership units at the time, according to a prospectus filed with the SEC on June 25, 2007.

The partnership units are exchangeable for common shares on a one-for-one basis. Blackstone had more than 700 million partnership units outstanding as of Sept. 30, according to the firm’s most recent quarterly report.

AIG in November notified Blackstone that it would exchange 10 million of its partnership units for an equal number of common shares, according to the Schedule 13G filed earlier this month. AIG received the 10 million shares on Dec. 15 and sold them the same day for $13.41 each, or a total of $134.1 million, according to a Form 4 filed with the SEC.

On Dec. 9, AIG notified Blackstone that it would exchange the remainder of its stake, consisting of 35.7 million partnership units, for common stock. AIG expects to receive the common shares on Feb. 9, according to the Schedule 13G.

AIG’s exchange of a combined 45.7 million partnership units will increase the number of Blackstone common shares outstanding by about 18 percent to 304.3 million, according to the Schedule 13G. The 35.7 million shares that Blackstone will receive equal about 11.7 percent of the outstanding common stock, adjusted for the conversions.

Blackstone common shares have increased about 9 percent so far this year. They fell 7 cents to $14.29 at 12:46 p.m. in composite trading on the New York Stock Exchange. At that price, AIG’s 35.7 million shares would be worth more than $510 million.

To contact the reporter on this story: Miles Weiss in Washington at mweiss@bloomberg.net

To contact the editor responsible for this story Christian Baumgaertel at cbaumgaertel@bloomberg.net.

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