The saga over government ownership of American International Group, Inc. (NYSE: AIG) is one which is likely to be with us for quite some time. It is hard to believe that CEO Robert Benmosche’s 18 month exit plan is a bit too ambitious, but the first round of share sales is now happening.
The three domestic investment banks selected to underwrite the offering are J.P. Morgan Chase & Co. (NYSE: JPM), Goldman Sachs Group Inc. (NYSE: GS), and Bank of America Corporation (NYSE: BAC). Deutsche Bank AG (NYSE: DB) was the sole foreign bank in on the offering. While that has all been reported widely by now, we want to take a look at an example of Petroleo Brasileiro (NYSE: PBR) as perhaps one of the closest similar deals even though it was without as much controversy.
AIG is about 92% owned by Uncle Sam as of today. Benmosche has led the company out of much trouble and he was not present during the AIG meltdown. His goal is to get the ownership down to zero and to repay the US-taxpayers. Benmosche wants to get that 100% repaid before he leaves, and Americans should hope that his fight with cancer does not prevent from happening.
The recent General Motors Co. (NYSE: GM) was the largest IPO, but the current figure being discussed for a share sale in AIG is closer to $23 billion. AIG shares are currently down around $52.50 on Wednesday. The 52-week trading range is $21.54 to $62.87, and shares closed out 2010 at $57.62.
The price matters here. Taxpayers and the government need to recoup assets here. Selling all at once would not be in anyone’s best interest. The $60+ billion or so valuation after the recent recapitalization pacts would create a severe drop in AIG shares. Some Americans might cheer that at first, but that in turn would mean that taxpayers and the government are getting far less back.
Petroleo Brasileiro (NYSE: PBR), or Petrobras, is really the only other share sale to use as a guide. That IPO caused severe pressure on the stock and its shares have not really risen that much considering the state of the oil sector since then. Petrobras sold a stake to buy the massive offshore deep-water oil reserves from the government, some 2.9 billion shares at about $34.49 per share. Investors need to know that shares were up well above $40.00 before the share sale became known and quantifiable. Petrobras shares trade close to $37.00 today.
This coming AIG sale will still take a while to work out as far as terms and conditions. By the sound of it, one-third of the government’s stake will be sold to Joe Public. Whether the other two-thirds can be unloaded over an 18-month period depends upon many factors. The biggest factor is the stock market and whether there is enough liquidity out there to absorb all this stock.
The lesson GM is a hard one to use, but the example of Petrobras is rather easy to see. Flooding the market with too much stock at once will come at too big of a sacrifice in price.
JON C. OGG