AIG CEO Benmosche Looks Safe Despite AIA Deal Failure

By | June 3, 2010

When large deals fail, heads often roll.

In the case of Prudential Plc’s failed attempt to buy American International Group Inc.’s Asian life insurance unit for $35.5 billion, the British insurer’s management has more to worry about than AIG’s.

Prudential CEO Tidjane Thiam, in the top job for less than a year, is facing investor speculation about how long he can remain. But AIG Chief Executive Robert Benmosche, also in charge less than a year, looks set to survive unscathed.

U.S. Treasury Secretary Timothy Geithner said AIG, which is nearly 80 percent owned by the government, is now in a position where it can “maximize the return to the taxpayers.”

“We have a very strong management team and a much stronger board in place making incredibly impressive progress, frankly, in restructuring that entity,” Geithner told reporters before departing for the G20 meeting in Busan, Korea. “So I wouldn’t look at that as a setback.

“AIG is now free to pursue a bunch of other options to help maximize the return and reduce any risk of loss to the taxpayer,” Geithner added, when asked whether the collapse of the deal hurt AIG.

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Benmosche has said AIG has several options and more flexibility on timing regarding AIA now than it did when the deal was struck earlier this year.

These options could include reviving plans for an AIA IPO or selling the business piece by piece.

Benmosche has also indicated he is not going anywhere.

“I am very proud of the progress we have made together to take our company forward,” he told employees in a memo after the deal looked set to collapse Tuesday. “I am committed to continuing this process with all of you.”

Still, the collapse of the deal sets back his plans to repay U.S. taxpayers owed billions after AIG’s $182.3 billion U.S. government rescue at the height of the financial crisis.

Benmosche has been a proponent of a deal with Prudential rather than monetizing it through a public float.

Earlier this year, AIA was well on its way to an IPO when Prudential offered to buy it. Benmosche backed the deal, but the AIG board was initially divided before coming around.

On Monday, when the board met to consider selling AIA on revised terms, Benmosche favored accepting Prudential’s new deal because, even at a lower price of $30.4 billion, it offered more liquidity and sooner. But this time the board voted against changing the terms.

AIG’s board wanted assurances from Prudential it would be able to close a revised deal, which the British insurer was not able to provide.

“Anytime there is a fundamental action in which the CEO and the board disagree, your relationship needs to be evaluated,” said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. “That doesn’t happen too often.”

But Elson said having the U.S. government as the largest shareholder made the AIG situation hard to read.

Benmosche does not appear to be taking the heat for the deal’s failure, with the focus more on how the Prudential management was unable to rally its shareholders.

AIG Chairman Harvey Golub told the Wall Street Journal the board had “full confidence” in senior management. At any rate, running AIG is not an easy job, with Benmosche the fourth CEO at the insurer since June 2008.

“Who else are they going to get? Who is going to do a better job?” said Aite Group senior analyst Clark Troy. “I don’t think Benmosche is at great risk and, frankly, I think AIA still has a very strong franchise.”

(Reporting by Paritosh Bansal; additional reporting by Glenn Somerville; editing by Andre Grenon)

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