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Unhappy With Buyout, Shareholders Seek New Direction for AIG

Published 09/23/08 Craig Harrington - Print Article
E-mail - editor@economyincisis.org

Major shareholders of American International Group gathered on Monday to find a better deal for the embattled insurer than the $85 billion Federal Reserve takeover, according to The New York Times.

Shareholders have feared that the buyout – which secures the government with a 79.9 percent share of AIG – would wipe out the remaining value of their already vastly devalued shares. Several policies have been proposed, including the joint purchase of the rest of AIG (which is worth over 90 percent less now than it was one year ago) by its remaining shareholders.

Shareholder representative Michael Kantor believes that both the shareholders and the taxpayers would benefit from a plan which did not involve the proposed $85 billion buyout package.

The Federal Reserve stepped in with its two-year loan package when AIG failed to raise capital from private interests. This takeover now pales in comparison to the immensity of the $700 billion government bailout arrangement proposed over the weekend, but it represents a real burden to taxpayers.

If AIG proves to be past the point of no return, the government stands to lose all of its investment. Furthermore, if the bailout package does indeed wipe out shareholders, then they stand to lose everything as well. The shareholder committee seeks to avoid this buyout by restructuring the plan to protect them from insolvency and in turn protect the taxpayers from footing the bill.

It may be difficult to stop the takeover now that the ball is rolling – AIG has reportedly already drawn from the $85 billion loan fund – but the shareholders, as well as New York state officials, are convinced there is a better way. Former CEO Maurice R. Greenberg still owns a controlling interest in the company. He supports the efforts of the shareholder committee but it is unclear how successful they can be at this point.

The shareholder backlash against a government takeover should be taken as evidence that perhaps intervention was not the best idea. Should the government’s move fail, it would cost shareholders and taxpayers. The ad hoc nature of the government’s proposal seems to have ignored the interests of many of those directly invested in its outcome.

Source The New York Times:

Major shareholders of American International Group were scrambling on Monday to see if a better deal was possible than the anticipated restructuring of A.I.G. under the Federal Reserve, which they feared would all but wipe out the value of their stakes.

…

Mr. Kantor said he believed that both the shareholders and the taxpayers would be better off if a new restructuring plan could be devised. The meeting ended without a clear plan of action, but Mr. Kantor said the discussions would continue.

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