Thursday, January 13, 2011

AIG (NYSE:AIG) Paying Off Government Friday at Cost of Huge Dilution

Assuming they are able to successfully implement their plan, AIG (NYSE:AIG) says they're going to pay off the U.S. government Friday, hopefully ending the taxpayer bailout of the company, which at its height cost over $180 billion.

The practicals of the transaction are the U.S. Treasury Department will exchange $49.1 billion of preferred shares they own for 1.655 billion new shares of AIG common stock on Friday.

The consequences will be an enormous dilution of the stock for those currently holding shares of AIG.

To battle the obvious exodus of shareholders, AIG has been given permission to issue close to 75 million warrants where private shareholders will be able to acquire one share of common stock of AIG for $45 each.

Warrants will start to trade under the ticker symbol “AIG WS” on the New York Stock Exchange today.

The distribution of warrants will occur on January 19 to shareholders of record as of January 13. Shares of AIG will resume trading with the right to warrants on January 20.

AIG Chief Executive Robert Benmosche said in a statement, “With today’s (Wednesday) announcement, we anticipate that we will be able to deliver on our promise to the American people to repay the extraordinary assistance they provided to AIG during the financial crisis of 2008.”

If the deal does close, the Treasury will own somewhere around 92 percent of AIG. Similar to the bailed out banks, the government will sale its stake in AIG over a period of time, based on market conditions and other factors.

AIG closed Wednesday at $58.40, losing $0.64, or 1.08 percent.

No comments: