American International Group Inc., the insurer that repaid a U.S. bailout, is benefiting on the stock market as the company becomes easier to understand with moves like its exit from AIA Group Ltd.
By divesting Hong Kong-based insurer AIA, the New York-based company removes a holding whose stock market fluctuations increased volatility in quarterly profits. Investors may be willing to pay a higher valuation for a company that’s simpler, said Meyer Shields, an analyst at Stifel Nicolaus & Co.
“There were few companies that were nearly as complex as AIG,” he said. “It makes it a lot easier to understand because there are fewer moving parts.”
AIG is selling as much as $6.5 billion of AIA, exiting its remaining 14 percent stake in a business with ties to the company’s founding from 1919. Chief Executive Officer Robert Benmosche reached a deal this month to sell a plane-leasing unit, and the U.S. sold its final stake in AIG acquired during a 2008 bailout that swelled to $182.3 billion.
“AIG’s continued portfolio optimization should free up additional excess capital that, subject to regulatory approval, likely can be returned to shareholders,” according to a letter in October from Third Point LLC, the hedge fund run by Daniel Loeb. Third Point has 23.5 million shares as of Sept. 30.
AIG advanced 3 percent to $34.95 at 4 p.m. in New York. The insurer gained 51 percent this year, compared with the 14 percent advance of the S&P 500.
Trading of AIA has been suspended. AIG is selling about 1.65 billion shares in Hong Kong-headquartered AIA at HK$29.65 to HK$30.65 each, according to a term sheet obtained by Bloomberg News. AIA closed at $31.65 on Dec. 14. AIG said the offering price will be disclosed before the Hong Kong market opens on Dec. 18.
Benmosche, 68, is focusing on U.S. life insurance and global property-casualty coverage after AIG sold more than $65 billion in assets, from Asian insurers to its New York headquarters, to help repay the U.S. bailout. AIG sold about $8 billion of AIA shares in March and September, following a 2010 initial offering that reduced the New York insurer’s stake to 33 percent.
Shields rates AIG the equivalent of neutral, saying in a research note today that the “attractive” valuation is offset by pressure from low interest rates and “below-average” earnings at the firm’s core insurance units.
AIG will use proceeds for general corporate purposes, it said in a statement. Benmosche would like to pay a dividend in 2013 if the firm’s capital position is strong enough, he said on a conference call in November. The U.S. Treasury Department sold its last 234.2 million of AIG shares last week, marking the end of the rescue more than four years after the U.S. took over the company to save the global economy.
“AIG has greatly simplified its business profile over the past few years,” Bruce Ballentine, an analyst at Moody’s Investors Service, wrote in a research note today. “Separation from the Treasury is credit positive for AIG because it signals that the company has substantially recovered from the financial crisis.”
AIA traces its roots to 1919 when Cornelius Vander Starr, an American businessman, set up a fire and marine insurance agency in Shanghai. It was the first foreign-owned insurer to get a license in China, according to the company’s website.
Maurice “Hank” Greenberg, who built AIG into the world’s largest insurer during his four-decade leadership of the firm until 2005, called AIA one of his company’s “crown jewels.” AIA, the third-largest Asia-based insurer, has repositioned itself as an independent company after losing share of new business during the global financial crisis because of its AIG ties.