Treasury Seeks to Sell Majority of AIG Stake

The US Dept. of Treasury is seeking to sell most of its remaining shares of AIG common stock.  From the prospectus, here is a brief history of the Treasury’s post-bailout AIG common stock investment and subsequent divestment (bullet points added for a bit of clarity):

On January 14, 2011, upon the closing of the Recapitalization, we issued 1,655,037,962 shares of our common stock to Treasury, in exchange for shares of various classes of our preferred stock held by Treasury . . .

  • On May 27, 2011, Treasury sold 200,000,000 shares of our common stock in a registered offering.
  • On March 13, 2012, Treasury sold 206,896,552 shares of our common stock in a registered offering, including 103,448,276 shares we purchased in the offering.
  • On May 10, 2012, Treasury sold 188,524,589 shares of our common stock in a registered offering, including 65,573,770 shares we purchased in the offering.
  • On August 8, 2012, Treasury sold 188,524,590 shares of our common stock in a registered offering, including 98,360,656 shares we purchased in the offering.

The shares of our common stock held by Treasury represented approximately 53 percent of our outstanding common stock as of August 31, 2012. 

AIG is one of a number of companies with US government bailout-associated ownership (the list includes GM, Ally (formerly GMAC), and a significant number of banks).  The Obama administration has been looking to trim the list, but has been in a quandary: 1) trickle out the shares so as not to depress the market price, but remain vulnerable to criticism of the government’s ownership of GM, AIG, etc., or 2) sell the shares as quickly as possible–even if that means realizing losses on the “investment”–thereby exposing the administration to criticism for wasting taxpayers’ money.  The administration has taken the first option, and they have fairly successfully deflected criticism over their continued ownership of stocks in the bailed-out firms (by “successfully”, I mean in the sense that criticism over post-bailout stock ownership has not been an issue with legs in the campaign; people may not like the bailout, but Republicans have gotten very little mileage over the administration’s handling of its stock holdings).

That said, the prospectus includes some interesting disclosure in the “Risk Factors” section, which I think encapsulates the problems that can come with mixed governmental/private investor ownership where the governmental investor controls golden shares or otherwise exerts policy-making influence:

Treasury will continue to be a significant shareholder after this offering and may have interests inconsistent with other holders of our common stock.

Treasury currently has approximately 53 percent of the voting power of our common stock before this offering. The voting power of our common stock held by Treasury would be reduced to approximately  [  ] percent of our outstanding common stock after the completion of this offering, assuming no exercise of the underwriters’ over-allotment option to purchase additional shares from the selling shareholder. The interests of Treasury (as a government entity) may not be the same as those of other holders of our common stock.

 Treasury will continue to have a significant vote on matters subject to shareholder approval, including: 

  • approval of mergers or other business combinations;
  • a sale of all or substantially all of our assets;
  • amendments to our restated certificate of incorporation; and
  • other matters that might be favorable to Treasury, but not to our other shareholders.

Moreover, Treasury’s significant vote in connection with a change in control of us could also have an adverse effect on the market price of our common stock. Treasury may, subject to applicable securities laws and except as described under “Underwriting,” transfer all, or a portion of, our common stock to another person or entity and, in the event of such a transfer, that person or entity could become a significant shareholder. Treasury’s rights under a registration rights agreement, dated as of January 14, 2011, between us and Treasury (the “Registration Rights Agreement”), may be assigned to any person purchasing over $500 million of our common stock.

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