In basketball it’s called a full court press. From one end of the court to the other, no matter where a player is, a defender is there. It’s a defense that’s almost an offense and when done correctly, it’s lethal.
AIG CEO Peter Hancock has to feel he’s under an insurance and investment type of full court press. Billionaire Carl Icahn — who is one of AIG’s biggest shareholders — wants Hancock to separate the company into three different firms.
Hancock and the AIG board have resisted the push.
Icahn sent a letter to the board — again — indicating the split will get AIG out from under the federal government’s thumb since it has been designated a systemically important financial institution (SIFI). And he points out that MetLife has already announced it is going to take the plunge and split up its business and retail lines.
He also sharply criticized the board for ignoring reality and not taking actions to firm up the company and improve its financial condition. In his letter Icahn four points and says these are the least the board should do:
• 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.
In conclusion, Icahn said, “It would be a mistake to squander this opportunity to present a bold new strategy and instead waste investors’ time providing excuses for past underperformance. Furthermore, we believe even the announcement of isolated asset sales without a clear commitment to a transformative strategy would be a disappointment and further destroy value.”
Hancock has rejected the billionaire’s plan and said it does not make financial sense. He contends dividing the company will impact earnings and reduce the value of some of AIG’s tax assets.
Source links: Insurance Journal, Carrier Management