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 Former American International Group Inc. CEO Maurice "Hank" Greenberg wants the board of directors to explain its sale process after it apparently sold off an asset at a "fire sale" price in an effort to repay a $152.5 billion loan from the U.S. government.
The board agreed to sell its HSB Group
to German reinsurer Munich Re for $742 million in December. Because the
Munich Re CFO Joerg Schneider said the value of the asset was "very
low," according to the letter in SEC documents, Greenberg wants an explanation of the board's strategy for selling off assets.
Why has the board decided to sell at this time when the economy remains unstable? Certainly, selling major assets at fire sale prices is not a viable strategy for reviving the company or even repaying the government.This isn't the first time Greenberg has spoken out, saying the company should be rebuilt and assets sold "at a much later date." In December Greenberg said on CNBC that the government's solution of essentially buying 80% of AIG was too extreme and would force his former company to liquidate. AIG told The Deal it had no comment in regards to Greenberg's statements. Gary Ranson, an analyst at Fox-Pitt Kelton Cochran Caronia Waller, told Bloomberg of the HSB Group sale, "If that is at all representative of the market opportunities out there, the value of a lot of other things AIG is selling will be fairly discounted." He added that, CEO Edward Liddy would be able to raise about $100 billion by liquidating the entire firm, 17% less than three months ago. It's not really a mystery why the board is selling at "low" prices. With liquidity frozen, sellers have to bring down prices in order to sell. As Nicole Arnaboldi, the chairman of DLJ Merchant Banking Partners, said at The Deal's M&A Outlook 2009 conference in November, "Sellers are still reluctant. The only ones coming down [on price] are the forced sellers." She also stated that valuations would gradually decrease. AIG is a forced seller, but it also has government backing with certain conditions, including a timeline attached. Under AIG's current deal with the Fed, the insurer can sell assets only to bidders paying at least 90% of the price in cash. The provision was set to ensure that the company can meet its obligations to pay back the interest and the principal on a five-year, $60 billion government loan and $4 billion a year in interest on $40 billion of preferred shares. However, due to market conditions and the frozen marketplace, the insurer may have to ask the Fed to relax rules on its $60 billion loan "to allow bidders to use a greater proportion of shares to pay for its asset," according to the Financial Times. AIG has been successful at selling some assets. Here is the latest list of completed asset sales:
Many other rumored sales are underway. The question is: Will they also sell at "fire sale" prices? Here are the latest AIG asset sales rumors:
Also see: PKO eyes AIG's Polish arm AIG could soon announce more asset sales AIG asset sale progresses No bonus for AIG execs as bidders for assets line up AIG asset sales may happen before end of year Categories Deal Video
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