Will activist investors crack AIG?
American International Group Inc. (AIG) is facing highly publicized pressure to split up its business from Carl Icahn. The billionaire activist investor believes the multinational insurance company can cut down on costs and federal regulation by dividing into three separate companies — one for property-casualty coverage, another for life insurance, and the third for mortgages.
Other than being one of the United States’ largest insurance companies, AIG is also known as one of the main culprits behind the 2008 financial crisis. The company was deemed too big to fail by the United States government and received an $85 billion loan from the Federal Reserve.
Icahn outlined his plan for the split of AIG in an open letter to chief executive officer Peter D. Hancock. He believes the company is suffering from an, “onerous regulatory burden,” and could improve performance by slimming down.
AIG has been designated as a systemically important financial system by the Financial Stability Oversight Council. This means that the insurer must adhere to more strict regulations and keep more capital in reserve than smaller, less integrated financial institutions. If it were to split up, the component parts would have significantly more freedom to maneuver, while at the same time pose less risk to the American economy.
— CNBC Now (@CNBCnow) November 3, 2015
Chief executive Hancock does not believe Icahn’s plan is in the company’s best interest: “Management and the board have carefully reviewed such a separation on many occasions, including in the recent past, and have concluded it did not make financial sense.”
Although management does not agree with the Icahn’s assessment, the final decision will be in the hands of the shareholders. If sentiment to split the company gains popularity, AIG could be in store for one of the largest proxy wars in recent history.
Does Carl Icahn have enough leverage to engineer a split a company as large as AIG? Because of AIG’s size and risk profile should it be broken up regardless of Icahn’s involvement? Feel free to leave a comment or find me on Twitter @Andrew_Morse4