This strategic move comes in the wake of Icahn’s representative joining AIG’s board.
The America International Group Inc. has disclosed that it would divest its mortgage-guarantee unit to Arch Capital Group Ltd for around $3.4 billion.
By doing so, AIG, the largest commercial insurer in the US and Canada, hopes to generate at least $2.2 billion in cash, as well as receive $250 million in Arch Capital’s perpetual preferred stock and $975 million in non-voting common-equivalent preferred stock.
Earlier, the Wall Street Journal had reported the AIG-Arch Capital Group deal, citing sources who were familiar with the matter at hand.
In January this year, AIG had disclosed that it wanted to cut jobs, spin-off its mortgage unit and sell off its broker dealer network in efforts to generate enough cash to fend off Carl Icahn, a prominent activist investor.
In March, in keeping with this promise to shareholders, United Guaranty filed for an IPO of upto $100 million.
These moves comes in the wake of Icahn pushing the insurer for a three-way split. His representatives had managed to secure a seat at AIG’s board this year.
For Icahn, splitting up AIG has strategic benefits because AIG would then no more be designated as a systemically important financial institution, which would free it from strict capital requirements.
Driven by strong underwritings and lower costs, AIG has reported a higher than expected quarterly operating profits.
For the above deal, Morgan Stanley & Co LLC and J.P. Morgan Securities LLC were the advisers for AIG with Sullivan & Cromwell LLP being its legal counsel. For Ach, Credit Suisse Group AG acted as its financial adviser while Clyde & Co and Cahill Gordon & Reindel LLP acted as its legal adviser.