Sources have reported that Ascot Underwriting Holdings Ltd., the Lloyd’s of London insurer tied to American International Group Inc. AIG will be bought by Canada Pension Plan Investment Board.
Though the deal is valued at $1.1 billion, American International will get $240 million for its 20% share in business and ownership of a related unit.
This is yet another divesture this year that will generate funds for American International and reduce its size. The company has undertaken several divestures in a bid to make itself simpler and streamlined.
American International, which was a victim of the financial crisis in 2008 and was rescued by the government, has generated funds more than $90 billion by selling assets and businesses since then.
The company’s restructuring initiatives have more recently gathered steam after its CEO, Peter Hancock, was urged by investor Carl Icahn last November to trim the massive company by dividing it into three parts – property and casualty, life and mortgage insurance. According to Icahn, these three businesses are so diverse that they together provided little or no synergistic effect. Also, Icahn stated that the company’s mammoth size was acting as a hindrance to its own progress as evident by its underperformance in the past several years.
Though the company has carried out numerous divestures since 2008, these could not generate the anticipated returns. The company has therefore taken a series of steps since Nov 2015 after Peter Hancock was threatened by Icahn to be replaced from his job. In the beginning of 2016, American International announced that it will return $25 billion to its shareholders over two years. In view of this, last month, the company announced that it will sell its mortgage insurance unit United Guaranty Corporation (“UGC”) to Arch Capital Group Ltd. ACGL for $3.4 billion. Also, the company recently completed the sale of its Taiwan unit.
Other steps taken to drive up returns from the company included the announcement of a new share buyback plan last month to authorized the repurchase of additional shares with an aggregate purchase price of up to $3.0 billion. In Feb 2016, the company had authorized an additional $5 billion in share repurchases. The company also raised its quarterly dividend by 14%.
Moreover, the company formed a new Executive Leadership Team structure, comprising 10 heads – all veterans in their respective fields – to work toward attaining its strategic priorities. Several jobs were slashed, including those at senior positions, in order save costs. In May, company completed the sale of Advisor Group to investment funds affiliated with Lightyear Capital LLC.
Currently, AIG carries a Zacks Rank #3 (Hold). Better-ranked stocks from the same sector are MGIC Investment Corp. MTG and James River Group Holdings, Ltd. JRVR. While MGIC Investment sports a Zacks Rank #1 (Strong Buy), James River carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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