AIG Shares Rise As Carl Icahn Calls For Breakup

Carl Icahn American International Group AIGVia S&P CapIQ

Corporate raider turned shareholder activist Carl Icahn announced on Twitter late Tuesday that he had a “large stake” in AIG and had sent a letter to the CEO.

He published the letter on his website, and he pulls no punches in hammering AIG CEO Peter as “void of any decisive leadership” and demanding (not requesting) that the firm be broken up into three separate “monoline companies”.


Excerpts from Carl Icahn’s letter to AIG

Although Icahn did not specify the size of his “large stake” in AIG or how long he had held it, he argued the “time to act is now.”


He went on to say: “Despite definitive action on the part of Congress and regulators to encourage this company to become smaller and simpler by splitting up, you have shown no sign of urgency and have chosen a “wait and see…for years” strategy void of decisive leadership. As a result AIG consistently trades at a substantial discount to book value.  It is a “no-brainer” that the simple act of splitting this company up will greatly enhance shareholder value. “

Icahn’s plan to break up AIG into three public companies

Icahn offered a two-part plan for breaking up AIG in to three separate divisions:

  1. Undertake tax free separations of its life and mortgage insurance subsidiaries to create three independent public firms. Each will small enough to avoid the Systemically Important Financial Institution (“SIFI”) designation.
  2. Undertake a desperately needed cost control program to close the cost-structure gap with insurance industry peers.

He went on to explain why these moves are necessary, and need to be undertaken as as soon as possible.

Icahn writes: “Despite years of dismantling and selling non-core assets, AIG is still too large. The combination of life insurance and p&c insurance into a single entity offers no net benefit to shareholders (proven by industry low ROE), a fact that has driven other major multiline insurers to aggressively focus on a single line of business.  We believe you must acknowledge that the current multiline strategy is not generating competitive returns. Separate monoline companies will be more focused, more efficient, generate better returns and, as a result, command significantly higher market valuations.

Finally, Icahn highlights that a breakup into three parts allows all three firms to avoid the onerous SIFI designation that is currently holding back growth. “We believe you should immediately pursue, in the quickest and most efficient manner, a separation of both life and mortgage insurance from the core p&c insurance business. We believe all three companies would be small enough to avert the increased capital requirements and regulations associated with non-bank SIFI status. In the face of a changing and potentially punitive regulatory framework, you must realize that insurance businesses of AIG’s caliber are more valuable to shareholders if held directly than they are as part of a SIFI conglomerate.”


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