Activist investor Carl Icahn has again called for American International Group (AIG) to be divided into three separate companies and expressed doubt that AIG CEO Peter Hancock’s planned strategy presentation next week will satisfy his demand.
He said that if Hancock “fails to present a drastic strategic shift and instead is limited to only incremental changes such as small-scale asset sales and incremental cost cutting” then what “little credibility management now has will be lost.”
Icahn says the split would let AIG to “shrink below the threshold for systemically important financial institutions” (SIFI) and avoid SIFI-related regulatory restrictions.
“[I]t is abundantly clear to me there is only one sensible path for AIG to follow: become a smaller, simpler company with a path to de-SIFI,” he said in a letter on his website.
He said he hopes the board will take matters into its own hands if management continues to resist his plan. Icahn said he intends to launch a consent solicitation that will enable shareholders to express their views directly to the board, views he said that may include adding add a new director who would agree in advance to succeed the current CEO if asked by the board to do so. He first raised the possibility of replacing Hancock in November.
AIG issued a statement in response to Icahn’s latest volley:
“AIG continues to take steps to narrow its focus, improve its financial performance, and return capital to shareholders. AIG maintains an active dialogue with shareholders, including Carl Icahn. As previously announced, on January 26, AIG will provide an update on its strategy and its proactive plan to drive shareholder value.”
Ichan set forth four concerns he said AIG must address:
- Commit to streamline operations and focus on transforming the company into a competitive, pure play P&C insurer by committing to sell, spin, or otherwise separate non-core operations to de-conglomerate and apply to de-SIFI.
- Commit to fixing the P&C franchise so that it can generate competitive, double digit return on equity (ROE) through improved underwriting and cost reductions, even if it means bringing in outside talent.
- Commit to providing additional disclosure so all stakeholders can measure progress along the path outlined above over the next several quarters.
- Abandon credit default spreads levels as a metric in the long-term incentive plan (we believe this incentive is one reason management is resisting a de-conglomeration as it may negatively impact their bonuses) and instead adopt ROE.
Icahn first called for the split of AIG last October in a letter to Hancock. He says that since, then, “many large institutional shareholders and analysts” have come out in support of his views.
He also cited MetLife Inc.’s announcement last week that in a move similar to what he is advocating, it will spin off its U.S. retail business as part of a de-SIFI strategy.
Hancock has rejected Icahn’s plan, which he says does not make financial sense. Dividing up the company would would restrict earnings diversity and reduce the value of some tax assets, according to Hancock.
Credit markets have sided with Hancock.
Hancock has scheduled a public presentation for Jan. 26 at which he said he will provide a “proactive plan to drive shareholder value.”
Icahn is frustrated to not have won Hancock’s endorsement:
“[I]n in all of our discussions with Mr. Hancock it was abundantly clear to us that he is not willing to take the bold steps that we, and so many other shareholders, believe are long overdue. In addition, in those conversations he failed to lay out any alternative strategic plan with the potential to unlock value for shareholders or to provide compelling reasons as to why these businesses belong together.”
Icahn also accused AIG management of being “either purposely misleading in their public disclosures or negligently uninformed regarding the feasibility” of his de-conglomeration plan.
Icahn says it can often take years for boards and executives to come around to his way of thinking but in the AIG case he is not willing to wait years.
“In fact, we believe the current situation is too time-sensitive to even wait until the company’s annual meeting next spring, especially when all of the stakeholders who have reached out to us believe management’s current plan (or lack thereof) is insufficient,” he said.
Icahn owns 42 million shares of AIG, making him one of its largest shareholders.