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Icahn Urges AIG to Split Into Three, Says ‘Time to Act Is Now’
Katherine Chiglinsky Sonali Basak
October 28, 2015 — 8:09 PM WIB Updated on October 28, 2015 — 11:13 PM WIB
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AIG CEO Rebuffs Carl Icahn's Call to Split Company
Paulson says AIG is `overdue' in breaking up life and P&C
AIG CEO responds that he's taken important steps to refocus
Carl Icahn, the billionaire investor known for picking fights with corporate boards, disclosed an investment in American International Group Inc. and said it should split into three companies, one offering property-casualty coverage, another selling life insurance and a third backing mortgages. The stock rallied in New York trading.
“There is no more need for procrastination,” Icahn said in a letter posted on his website Wednesday and addressed to AIG Chief Executive Officer Peter Hancock. “The time to act is now.” Icahn cited billionaire John Paulson’s support for breaking up AIG, while announcing separately on Twitter that he holds a “large stake” in the insurer.
While AIG climbed about 8.8 percent this year through Tuesday’s close, the insurer still trades for less than 80 percent of book value, a measure of assets minus liabilities. Travelers Cos., the lone property-casualty insurer in the Dow Jones Industrial Average, trades for more than 1.4 times book value. AIG jumped 2.8 percent to $62.65 at 11:48 a.m., the most intraday since August.
Icahn, 79, said a tax-free separation into independent public companies would help AIG limit regulation. The U.S. has deemed the New York-based insurer as a systemically important financial institution, or SIFI, because of its size. The designation brings increased Federal Reserve oversight.
AIG Reorganization
“Enhanced regulation is intended to be a tax on size,” Icahn wrote in the letter. “In the face of a changing and potentially punitive regulatory framework, you must realize that insurance businesses of AIG’s caliber are more valuable to shareholders if held directly than they are as part of a SIFI conglomerate.”
Hancock, 57, who took over as CEO last year, reorganized AIG into two main divisions with one focusing on commercial clients and the other on individual consumers. He said the arrangement responds to customer demand and makes more sense than the previous split, which had a life unit and a property-casualty operation. AIG also has been divesting assets to boost capital, exiting its stake in aircraft-lessor AerCap Holdings NV and selling shares of consumer-finance company Springleaf Holdings Inc.
The insurer has “taken important and significant steps to reposition AIG by both simplifying and de-risking the company,” Hancock said in a statement. “We remain on course and are determined to continue and accelerate these efforts.”
Paulson, McGee
Paulson, the billionaire hedge fund manager who is also an AIG investor, is quoted in the letter saying that the insurer could trade for more than $100 a share if it split into three, reduced expenses, repurchased stock and matched average industry returns. Paulson in 2012 urged Liam McGee, then the CEO of Hartford Financial Services Group Inc., to separate its life insurer from the property-casualty operation.
McGee subsequently sold assets to simplify his company and won praise from Paulson. Travelers and life insurer Prudential Financial Inc. are among AIG rivals that sold units in prior years to narrow their focus.
‘Frankly Overdue’
“AIG is frankly overdue in following in the footsteps of all other major multi-lines in breaking up life and P&C,” Paulson is quoted as saying in the letter.
General Electric Co., whose finance unit is one of four non-bank SIFIs, has announced more than $120 billion of divestitures as CEO Jeffrey Immelt refocuses on industrial products spanning jet engines, oilfield equipment and locomotives. Immelt plans to apply to exit from SIFI status, a designation that could bring tougher capital, leverage and liquidity requirements.
Asked in a May earnings call if he would consider a similar strategy to escape SIFI status, Hancock said he needed more clarity on how the rules would be applied.
“Should you get off this off-ramp, there’s 200 other regulators that are also very interested in how we run the company,” Hancock said at the time. “So it’s not clear to me that getting off that off-ramp changes management’s flexibility in any material way.”
Credit Raters
AIG believes that its needs for holding capital are driven by ratings firms, not just government watchdogs, and would still be substantial if the company were split, said a person familiar with the insurer’s thinking. Intra-company guaranties would make it hard to split the businesses, and AIG would lose the advantage of cross-selling some products to corporate clients, especially outside the U.S., said the person, who asked not to be identified discussing internal deliberations.
In addition to distributing AIG’s debt among new companies, another barrier would be how to manage tax assets that the insurer accumulated because of losses in the financial crisis. Such assets can be used to lower obligations in future years.
While splitting the company would save costs, the process would be complicated, and the loss of diversity could jeopardize AIG’s credit rating, Meyer Shields, an analyst at Keefe Bruyette & Woods, said in an interview.
“The financial structure would take an awful lot of work to get through,” he said. “Management seems to think there’s a benefit to keeping them together.”
Greenberg’s Approach
AIG was built into the world’s largest insurer by former CEO Maurice “Hank” Greenberg, who added life operations and the aircraft business partly to counter the fluctuations of property and casualty operations. Results in those lines can swing widely based on the frequency of natural disasters or changes in prices.
The insurer’s size was seen as a hindrance in the financial crisis, after Greenberg had departed, when the company almost collapsed because of losses on mortgage-related derivatives bets and was bailed out by the U.S. in a rescue that swelled to $182.3 billion.
Hancock’s predecessor at AIG, Robert Benmosche, sold some non-U.S. life operations to help repay the bailout. Still, he resisted calls in 2011 for a breakup, saying the insurer benefits from having a variety of businesses.
Icahn has staged campaigns at companies including Hertz Global Holdings Inc., Gannett Co., Family Dollar Stores Inc. and EBay Inc. since the beginning of 2014. This month he got his way at Freeport-McMoRan Inc., the world’s largest publicly traded copper producer, which announced it was naming two of his associates to its board.
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American International Group Inc Markets Carl C Icahn
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Saudi Wells Running Dry — of Water — Spell End of Desert Wheat
Javier Blas
javierblas2
November 4, 2015 — 7:00 AM WIB Updated on November 4, 2015 — 7:09 PM WIB
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Farms in Saudi Arabia
Cultured farms in sit in Saudi Arabia. Photographer: Brendan Smialowski/AFP via Getty Images
Riyadh will import all the wheat needed for 2016 consumption
Aquifers that had irrigated wheat crops depleting rapidly
For decades, only a few features punctuated the vastness of the Saudi desert: oil wells, oases -- and wheat fields.
QUICKTAKE
Drought
Despite torrid weather and virtually no rain, the world’s largest oil producer once grew so much of the grain that its exports could feed Kuwait, United Arab Emirates, Qatar, Bahrain, Oman and Yemen. The circular wheat farms, half a mile across with a central sprinkler system, spread across the desert in the 1980s and 1990s, visible in spring to anyone overflying the Arabian peninsula as green spots amid a dun sea of sand.
The oilfields remain, but the last wheat farms have just disappeared to save the aquifers supplying them. For the first time, Saudi Arabia will rely almost completely on wheat imports in 2016, a reversal from its policy of self-sufficiency. It will become a full member of the club of Middle Eastern nations that, according to the commodity-trade adage, "sell hydrocarbons to buy carbohydrates."
The shift toward imports, which started eight years ago, is reverberating beyond the kingdom, providing business opportunities for grain traders such as Cargill Inc and Glencore Plc as well as for farmers in countries such as Germany and Canada.
"The Saudis are the largest new wheat buyer to emerge," said Swithun Still, director of grain trader Solaris Commodities SA in Morges, Switzerland.
Ahmed bin Abdulaziz Al-Fares, managing director of the Grain Silos and Flour Mills Organization, the state agency in charge of cereal imports, told an industry conference in Riyadh last month that Saudi Arabia will import 3.5 million metric tons in 2016. That’s a 10-fold increase from about 300,000 tons in 2008, the first year local crops were curtailed. An agency presentation says the kingdom will rely on imports for "100 percent" of its wheat in 2016 for the first time.
By 2025, demand is forecast to rise to 4.5 million tons as population growth drives demand for flour, positioning Saudi Arabia as one of the 10 biggest wheat buyers worldwide.
The shift is propitious as the wheat market weathers the largest glut in nearly 30 years, with bumper harvests filling up silos from Russia to Argentina. Prices for high-quality wheat, which reached an all-time high in Kansas City of more than $13 per bushel in 2008, have fallen to less than $5 this year.
Saudi Arabia is already the world’s lar