AIG's Planned Share Sale May Place Investors' Focus on CEO Succession Plan
American International Group Inc.’s Robert Benmosche, who doubled shareholders’ money in his first 17 months as chief executive officer, may be called on by new investors to show his firm is prepared to pick a successor.
Benmosche began treatment for cancer in October. He’ll welcome new shareholders this year as the U.S. Treasury Department, which owns most of the firm, sets its exit strategy. AIG is “strong and worthy of investor confidence,” Benmosche, 66, said yesterday in a statement announcing preparations for the eventual government divestiture.
“For investors to feel comfortable, they probably should have some type of succession plan,” said Frank Ingarra, co- portfolio manager at Novato, California-based Hennessy Advisors Inc., which oversees $900 million, including shares of AIG. “Those are long-term issues that you have to worry about.”
Benmosche, 66, told employees last year he expects his health will permit him to lead AIG until the Treasury’s exit. The company, based in New York, reiterated its support for Benmosche after the cancer diagnosis and said it was focused on succession. A “long-term replacement” will be selected over the next two years, the board said on Oct. 27.
The government agreed to convert its preferred equity into common shares that will give it a stake of about 92 percent, AIG said yesterday. Treasury, which helped arrange a $182.3 billion bailout that saved the firm from collapse in 2008, is interviewing bankers this week to select underwriters for its AIG divestments, said a person familiar with the plan.
The banks that are picked to underwrite the share sale will earn a fee of no higher than the 0.75 percent paid by General Motors Co. in its November initial public offering, according to a person familiar with AIG’s offering who declined to be identified because the discussions are private.
The U.S. has found buyers for its stakes in some of the country’s biggest firms including GM and Citigroup Inc. GM, the bailed-out carmaker, replaced its CEO to placate investors before a November initial public offering amid concerns that the chief would leave quickly after a stock sale.
“If they were to announce a formal candidate, maybe you could get slightly better execution” on the stock sales, said Jonathan Hatcher, a Jefferies Group Inc. analyst. “But I think the market wants to see Benmosche. People would love to see Benmosche as long as they could.”
AIG surged 92 percent last year as Benmosche sold a non- U.S. life insurer to MetLife Inc. for $16.2 billion and raised $20.5 billion divesting a majority stake in Hong Kong-based AIA Group Ltd. in an IPO. AIG fell 97 percent in 2008 and 4.5 percent in 2009 as the company replaced three CEOs. Maurice “Hank” Greenberg, who led AIG for almost four decades until he was ousted in 2005, has praised Benmosche.
“Bob has been the best leader they’ve had since I left the company,” Greenberg, whose Starr International Co. is AIG’s third-largest private investor, said yesterday in a Bloomberg Television interview.
AIG’s biggest shareholder after the government, Fairholme Capital Management LLC, began buying shares about five months after Benmosche’s Aug. 10, 2009 arrival, according to Bloomberg data. The investor, run by Bruce Berkowitz, has accumulated 44 million shares, or a third of the stock not owned by the U.S.
The insurer is set to issue 75 million warrants to shareholders next week as it works to repay the bailout. The 10- year contracts allow investors to purchase stock at $45 a share. The warrants changed hands for $22.18 at 4:15 p.m. in New York. About 1.6 million warrants changed hands today, the first session of trading for the contracts.
AIG directors met to discuss succession planning two days after Benmosche’s Oct. 25 disclosure of the cancer diagnosis. They decided AIG Chairman Steve Miller, 69, will fill in as interim CEO if Benmosche is required to step aside. Miller said on Dec. 14 that Benmosche was “doing terrific” and showed no signs of declining health or energy. Mark Herr, a spokesman for AIG, declined to comment.
Edward Whitacre, the 69-year-old former GM CEO, left the company last year after he was unable to offer reassurance to bankers that asked about his plans to remain on the job, two people with direct knowledge of the discussions said in August. His replacement, Daniel Akerson, led the company to an IPO of more than $20 billion.
“It’s certainly more desirable to come to the market with the planned management team intact,” said Peter Jankovskis, who helps manage $2.6 billion at Oakbrook Investments in Lisle, Illinois. “You don’t want someone pulling at strings here or there and all of a sudden having the whole thing unravel.”
Bank of America Corp., New York-based Morgan Stanley, JPMorgan Chase & Co., Citigroup Inc. and Goldman Sachs Group Inc., and as many as five other banks are making pitches to Treasury and AIG today to lead the share sale, said a person familiar with the discussions who asked not to be identified because they are private. The size of the sale hasn’t been decided the person said.
John Yiannacopoulos, a spokesman for Charlotte, North Carolina-based Bank of America, declined to comment, as did Mary Claire Delaney of Morgan Stanley, Tasha Pelio of JPMorgan, Alex Samuelson of Citigroup and Andrea Rachman of Goldman Sachs.
AIG’s board is considering making more disclosures about Benmosche’s health, the Wall Street Journal reported yesterday, citing a person familiar with the matter. Directors may seek an update from Benmosche and his doctors to help decide how long he’ll remain CEO, the newspaper reported.
Betting on Management
Benmosche may successfully lead AIG as Treasury divests its stake if the company can demonstrate to investors that it has the processes in place to find the right CEO when the time comes, said Stephen Miles, vice chairman of leadership consultant firm Heidrick & Struggles.
“You have to bet on something,” said Miles, who worked with the Stanford Graduate School of Business on a survey of CEO succession planning at North American companies. “So you’re betting on the management team. The quarterback of the management team is the CEO.”