Banking & Finance

AIG Secondary Versus Other Similar Historic Offerings (AIG, C, GNW, GE, MOS, PBR, DG, KKR, GS)

American International Group Inc. (NYSE: AIG) is going to be hard to bet against after its secondary offering if history is any barometer.  This 300 million shares sale is expected to price on Tuesday and part of the issue that clouds the sale is that AIG remains such a controversial company that the public is still not too much in love with.  We have just now seen a quick-hit analysis piece from Thomson Reuters in a public audio-video format with chart and fundamental data provided.  The data is actually hard to argue against, even if this is one of those times where the argument of “this time is different” can be applied. 

The video analysis compares AIG to Citigroup Inc. (NYSE: C) with its prior government stake sale, Genworth Financial Inc. (NYSE: GNW) when General Electric Co. (NYSE: GE) was unloading shares in 2005.  We would argue that the recent share sales of Mosaic Co. (NYSE: MOS) last week and the 2010 Petroleo Brasileiro (NYSE: PBR) might be necessary.  Our own analysis is more favorable to Mosaic Co. (NYSE: MOS) now that the Cargill sale was for 100 million shares.  Unfortunately, Petroleo Brasileiro (NYSE: PBR), or Petrobras, has not recovered since its huge government secondary stake sale last year.

The reason that 24/7 Wall St. feels that there may be a “this time is different” attitude in AIG is because the government is only going to be able to unload shares gradually and Uncle Sam has an exponentially higher share count that has to be unloaded in the coming months or years.  Still, there is plenty to support the thought that betting against AIG here is a bad idea. 

Our take is that the Dollar General Corporation (NYSE: DG) IPO from private equity is the best comparison for today’s analysis of AIG.  At $33.06 after a 1.7% loss today Dollar General has a 52-week range of $26.61 to $34.79, but the private equity backers that took it private and then resold it to the public markets are eager to sell shares each time the stock rises.  That being said, Dollar General came public again at $21.00 per share in November 2010 and the stock is much higher today.  Private equity owners, which are affiliates of Kohlberg Kravis Roberts & Co. (NYSE: KKR) and Goldman Sachs Group Inc. (NYSE: GS), have previously sold 25.0 million common shares at a price of $30.50 per share back in December of 2010 and previously sold some 26 million common shares at a price of $27.00 per share back in April of 2010.  That hasn’t prevented Dollar General from going higher and is one of the factors in us calling “DG a Stock to Own for the Next Decade” previously and currently. 

That Reuters audio-video presentation is available here if you missed it above and Zacks also has its own take.  After looking over all of the available and relevant data that we would care about, AIG is already down almost 40% so far in 2011.  Our take from the AIG roadshow commentary is that the overall reaction was a favorable one, or at least “less unfavorable” than many might have been expecting.  Shares are trading at $30.00 in mid-Monday trading and the 52-week trading range is $29.15 to $62.87.  The 52-week low has been seen recently as the secondary offering has been very well telegraphed.  If Uncle Sam wants to sell more shares, it will have to be done at a deeper discount.

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JON C. OGG