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AIG responds to investor Carl Icahn's call for breakup

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AIG responds to investor Carl Icahn's call for breakup

American International Group Inc.'s leader defended the company's business plan Wednesday, but also said he is open to shareholders' opinions after investor Carl C. Icahn proposed splitting the company into three parts.

Analysts say the idea of splitting up AIG has been floated before and could have merit.

In an open letter to AIG President and CEO Peter Hancock, Mr. Icahn proposed that AIG split its life and mortgage insurance subsidiaries from its property/casualty business to create three independent public companies to enhance shareholder value.

In response, Mr. Hancock said in a statement that the insurer has already taken “important and significant steps to reposition AIG.”

Moving the business to three, separate companies would make them small enough so they would not qualify to be designated a “systemically important financial institution” as AIG as a whole is now, Mr. Icahn said in the letter.

He said AIG also should embark on a “much-needed cost control program to close the gap with peers.”

“I have already heard from several large shareholders who are frustrated with the lack of clear progress and are supportive of an AIG breakup,” Mr. Icahn said.

“I simply cannot fathom how you can ignore repeated requests from shareholders to execute a plan that would release billions of dollars of capital, free the company from onerous excess regulation, and leave shareholders owning stock in three separate, market leading insurance franchises,” he said in the letter.

“Despite years of dismantling and selling noncore assets, AIG is still too large. The combination of life insurance and P/C insurance into a single entity offers no net benefit to shareholders. … a fact that has driven other major multiline insurers to aggressively focus on a single line of business,” Mr. Icahn said in the letter that urged AIG to pursue his plan “in the quickest and most efficient manner.”

CEO vows dialogue

In his response, Mr. Hancock said the insurer “maintains an open dialogue with all our shareholders and welcomes their feedback and ideas. We have taken important and significant steps to reposition AIG by both simplifying and de-risking the company, and realizing attractive valuations from noncore asset sales.

“We remain on course and are determined to continue and accelerate these efforts,” which Mr. Hancock said would be discussed when AIG released its third-quarter results Nov. 6.

Analysts see benefits

“There's a good argument for both strategies” of splitting the company up and keeping it intact, said Cliff Gallant, an analyst at Nomura Securities International Inc. in San Francisco. “The idea of splitting apart is interesting because you'd have more focus by management on the specific operations, and it may be easier to approach cost-cutting.”

Keeping the company together maintains balance in the business and AIG has made good progress under its current structure, Mr. Gallant said.

“I'd want to see what the plan is,” he said. If there is “someone willing to buy the companies for a big price,” then “it would be an easy decision” to break AIG up, he said.

“I think splitting the company may make sense,” said J. Paul Newsome, managing director at Sandler O'Neill Partners L.P. in Chicago. “Investors have typically thought life insurance companies and property/casualty companies are better managed separately,” and Mr. Newsome said he agrees.

As for cutting costs, “that's not terribly controversial,” Mr. Newsome said. “Management has been very open about their own view that expenses are too high” and the need to cut expenses.

The analysts said they believe AIG will consider Mr. Icahn's proposal.

“I think management was sincere when it said it was willing to explore” and is open-minded, said Mr. Gallant. “My guess is they want to see the plan, too. They seem to be very focused on creating shareholder value; so if they think it's a good idea, they'll take a look at it.”

“I don't think this is a management team that is going to ignore the issues,” Mr. Newsome said. “I would imagine the management team and the board would take an honest look at the proposal, and make a decision” whether it is a good idea to split the company.

“I don't think this is a management team that is isolated from investors,” said Mr. Newsome, who added that any action would be more than a year away

“I don't think anything will happen overnight,” he said. “It's going to take time.”

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