Icahn Repeats Break-up Call in Letter to AIG Board
January 21, 2016 by David Pilla, news editor, BestWeek: David.Pilla@ambest.com
NEW YORK – Investor Carl Icahn is turning up the pressure on American International Group Inc. to break up its businesses ahead of a Jan. 26 conference call the insurer will host to discuss its strategy.
Icahn published an open letter to AIG’s board of directors, repeating his call for AIG to split up, citing a recent poll of AIG shareholders by equity analysts at Sanford C. Bernstein, as well as a separation announcement by MetLife Inc. “and continued conversation with (AIG) shareholders,” saying “it is abundantly clear to me there is only one sensible path for AIG to follow: become a smaller, simpler company with a path to de-SIFI.”
Metlife is in the midst of a legal row with the U.S. Financial Stability Oversight Council over its designation as a systemically important financial institution whose hypothetical demise could imperil the nation’s economy. On Feb. 10 a federal court will hear oral arguments over whether MetLife should be designated as such (Best’s News Service, Jan. 14, 2016).
Equity analyst Josh Stirling and colleagues at Sanford C. Bernstein had polled AIG investors on their views of AIG’s strategy and got more than 100 responses that overwhelmingly favor a strategic course change ahead of a Jan. 26 conference call to be hosted by AIG to discuss the group’s strategy (Best’s News Service, Jan. 12, 2016).
“I recently had a discussion with (AIG) Chairman Douglas Steenland regarding the upcoming investor presentation and he agreed that if shareholders’ wishes go against those of (Chief Executive Officer Peter Hancock), the board would definitely listen, take notice, and pay attention to what shareholders want,” Icahn said in the letter.
“I was happy to hear this open mindedness because I believe management’s credibility with shareholders is all but gone,” Icahn wrote. “I suspect, after two months of waiting, management will release a ‘strategic update’ on Jan. 26 that fails to present a drastic strategic shift and instead is limited to only incremental changes such as small-scale asset sales and incremental cost cutting. If this occurs then the little credibility management now has will be lost. It is my hope that after the events outlined above and in light of management’s poor performance over the last several years, particularly in the property & casualty segment, the board will take matters into its own hands if management still resists drastic change.”
In response to a request for additional comment, AIG agave the following statement: “AIG continues to take steps to narrow its focus, improve its financial performance, and return capital to shareholders. AIG maintains an active dialogue with shareholders, including Carl Icahn.”
Icahn added he believes “management has been either purposely misleading in their public disclosures or is negligently uninformed regarding the feasibility of a de-conglomeration plan. In conversations with management, I learned that disclosures provided on the third-quarter earnings call regarding obstacles to de-conglomerating AIG were in some cases materially inaccurate.”
According to Icahn, “management failed to account, by their own admission to us, for deductibility of foreign tax credits in the event they could not otherwise be utilized. These lapses, in my opinion, show that management has been, to say the least, misleading in telling shareholders they have conducted any meaningful analysis of the impact a de-conglomeration strategy would have on the business — and to say the worst, they may have purposely misstated the facts to both the board and to shareholders.”
Icahn’s letter said that “to meet the minimum expectations of stakeholders, AIG must address four key concerns,” commit to streamline operations and focus on becoming a “pure play” property/casualty insurer; commit to “fixing the property/casualty franchise so that it can generate competitive, double-digit return on equity through improved underwriting and cost reductions, even if it means bringing in outside talent,” providing additional disclosure so all stakeholders; and abandon credit default spreads levels as a metric in the long-term incentive plan.
Underwriting entities of AIG currently have Best’s Financial Strength Ratings of A (Excellent).
Shares of AIG were trading at $56.82 on the morning of Jan. 19, up 1.3% from the previous close.
