AIG puts Chartis spinoff on hold: Report
December 21st, 2009
In a report Tuesday, Bloomberg, citing people familiar with the situation, reported that AIG Chief Executive Officer Robert Benmosche has signaled that he wants to hold on to the unit, telling employees he considers Chartis a core holding.
A spokesman for AIG declined to comment on AIG’s plans for Chartis.
Chartis, formerly known as AIU Holdings, was formed earlier this year through the combination of AIG’s domestic and foreign property/casualty insurance businesses. AIG’s previous CEO, Edward Liddy, had announced in April that the insurer was accelerating the separation of the unit to prepare for a sale or public offering of a minority stake, although no date had been set. At the time, AIG also said any decision on its future would depend on market conditions.
Chartis executives, including CEO Kristian Moor, had met earlier this year with financial advisers about a public offering, but preparations stopped after Mr. Benmosche took charge, Bloomberg reported.
According to the report, Mr. Benmosche is evaluating other options for the unit.
Analysts say any plans AIG has to keep Chartis are likely driven in part by continuing difficult economic conditions and that the move may just be temporary until conditions improve.
“Even with a recovery in the financial markets, the prospects are not good. Valuations for property/casualty companies are very low by historic standards, and the asset sales environment is very difficult right now,” said Mark Lane, a research analyst with William Blair & Co. in Chicago.
At the same time, AIG needs to generate cash to repay bailout funds, analysts say.
“They still have a very large loan to repay, and they desperately need liquidity in order to repay the government,” said Bill Bergman, an analyst with Morningstar Inc. in Chicago.
Observers say the move appears to be consistent with Mr. Benmosche’s broader approach to divestitures at AIG.
Since he took over the company in August, the CEO has moved to slow the pace of asset sales to try to generate higher values for the units in an effort to repay the $182 billion rescue package AIG received in 2008. Mr. Benmosche has temporarily halted at least two other sales, saying the businesses were important to AIG and higher prices would be gained by waiting for markets to recover.
Chartis, despite taking steps to inch away from AIG, “still faces numerous challenges, including the ability to retain talent, the ability to retain customers and questions about their loss reserve adequacy,” Mr. Lane said.
“However, the company is much more stable than it was one year ago. Some customers may view AIG as a survivor, and that will give them comfort, while others will be turned off by concerns about AIG’s long-term financial stability,” Mr. Lane said.
Chartis has 34,000 employees and approximately 40 million clients in 160 countries and jurisdictions.
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