AIG Reaches Agreement With Icahn for Board Representation -- 3rd Update
12 February 2016 - 12:07PM
Dow Jones News
By David Benoit and Leslie Scism
Billionaire investors Carl Icahn and John Paulson dropped their
public fight with American International Group Inc. on Thursday,
promising a year of peace in exchange for two board seats.
The pact ends a monthslong showdown between the two activist
shareholders and one of the largest insurance companies in the
world. Messrs. Icahn and Paulson urged the company to break up and
were publicly critical of AIG's structure and performance.
Their argument was that by dividing into smaller parts AIG could
escape onerous regulations imposed by federal policy makers in an
effort to head off systemic threats like the one AIG once posed
during the last financial crisis.
AIG and its Chief Executive Officer Peter Hancock resisted that
breakup call and argued the company was better off with its life
and property and casualty insurance units together, though Mr.
Hancock did unveil steps to shrink the conglomerate in coming
years.
The moves failed to persuade Mr. Icahn that the board was doing
as much as he thought could be done. Settlement talks between the
activists and AIG Chairman Douglas M. Steenland accelerated this
week and went straight through Thursday afternoon, people familiar
with the matter said, ahead of a weekend deadline for investors to
launch a proxy fight.
AIG in the end agreed to nominate Mr. Paulson and Samuel
Merksamer, one of Mr. Icahn's top lieutenants, to its board at the
company's 2016 annual meeting. In exchange, Messrs. Icahn and
Paulson agreed not to wage a proxy fight this year. That could have
put AIG's performance and management team under a harsh light,
something the company hasn't seen since the days when it took a
nearly $185 billion, since repaid, U.S. government bailout.
The settlement includes a standstill that would expire in
August, according to a securities filing, which would keep the
parties from publicly airing more concerns.
"We continue to believe that smaller and simpler is better and
look forward to working collaboratively with the board and
management to help catalyze a turnaround," Mr. Icahn said in a
statement. His aim, he said, is to get AIG to shed its federal
designation as a systemically important financial institution.
Referring to the new board members, Mr. Steenland said AIG looks
forward "to benefiting from their insights."
A representative for Mr. Paulson's Paulson & Co. hedge fund
said the firm had no comment.
The agreement came as AIG released fourth-quarter results. The
global insurer posted a $1.84 billion loss on a previously
announced strengthening of claims reserves while increasing its
common-stock dividend and buyback program. AIG shares edged up 1.9%
to $51.49 after hours.
Other insurance stocks fell sharply Thursday as worries mounted
about the pain of plunging oil prices and the possibility that low
interest rates won't go away as fast as expected. Prudential
Financial Inc. dropped 9.5%, to $58.
Rising rates are good for large insurers because they tend to
invest the premiums paid by individuals and businesses in
high-quality corporate bonds as a way of generating income until
claims come due.
The fear among insurance investors is that the Federal Reserve
won't follow through on its desire to gradually raise interest
rates this year because of concerns about global economic growth.
That means the pressure on insurers' investment income could
remain--potentially for years.
In recent months, Mr. Icahn had suggested he would seek
directors who could replace AIG's CEO, Mr. Hancock.
Mr. Hancock committed on Jan. 26 to a wide-ranging set of
initiatives to improve financial results, including returning at
least $25 billion of capital to shareholders over the next two
years, as an alternative to the dramatic split envisioned by the
billionaire investors. He promised improvement in profit metrics
over the next two years, through more aggressive cost-cutting,
sales of some operations and exiting some business-insurance
segments.
The company also announced a planned initial public offering of
up to 20% of its mortgage-insurance unit and the sale of a
financial-advisory business.
Mr. Hancock is "moving forward with a sense of urgency" to put
the strategy into place, and has spent a significant amount of time
meeting with shareholders over the past few months, one person
familiar with the matter said.
Last month, Mr. Hancock surprised investors with the
announcement of a plan to strengthen reserves by $3.6 billion
before taxes, or about 6% of AIG's total net loss reserves. The
increase applies to a wide range of policies sold over many years,
from more than a decade ago through 2014.
The reserve strengthening and a $222 million pretax
restructuring charge created a fourth-quarter loss of $1.84
billion, or $1.50 a share, compared with net income of $655
million, or 46 cents a share, in the year-earlier quarter.
Joann S. Lublin contributed to this article.
Write to David Benoit at david.benoit@wsj.com and Leslie Scism
at leslie.scism@wsj.com
(END) Dow Jones Newswires
February 11, 2016 19:52 ET (00:52 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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