Paulson & Co., one of the largest stockholders of American International Group, expressed disappointment with the position of the management of the insurance regarding the proposal to separate its life and mortgage insurance businesses.
AIG CEO rejects breakup proposal
During a conference call with analyst, AIG CEO Peter Handcock said the company’s Board and management “carefully reviewed” the proposals of breaking up its businesses, but they concluded that such move “did not make financial sense.”
Mr. Hancock made the comment after activist investor Carl Icahn sent a letter urging the Board and management of AIG to pursue a tax-free separation of its life and mortgage subsidiaries to create three independent public companies.
According to the activist investor, each of the companies that will be created would be small of enough to prevent its designation as Systemically Important Financial Institution (SIFI). Mr. Icahn added the separation would allow AIG to close the gap with peers because it can implement a much needed cost control program.
Mr. Hancock said AIG’s SIFI designation by federal prosecutors did not limit its ability to return capital. He emphasized that breaking AIG into smaller companies would likely result in “less capital” returns to shareholders.
Paulson & Co’s response to AIG CEO’s statement
In response to Mr. Hancock, Charles Murphy, a partner at Paulson & Co said AIG’s” status quo is not acceptable” citing the fact that its third-quarter financial results were worse-than-expected.
“AIG’s results were very disappointing. The company’s “poor results are not an industry problem but unique to AIG, said Mr. Murphy.
He pointed out that the company’s return on equity in the mid-single digits was significantly lower than the performance of its competitors including ACE Limited, Chubb Corp, and Travelers Companies.
Paulson & Co. has little confidence in the management, strategy, and structure of AIG, according to Mr. Murphy. He added that the insurance giant is“slow moving, difficult to manage, high cost and inherently complex.”
John Paulson, the hedge fund manager of Paulson & Co. previously stated that
“AIG is frankly overdue in following in the footsteps of all other major multi-lines in breaking up Life and P&C into separate companies.”
Mr. Paulson believed that AIG could, buyback stocks, reduce unnecessary costs and operate at average industry returns by separating into three independent companies. He projected that AIG’s stock price could increase as much as $100 per share from its current trading price at around $6 per share.