Last week activist investor Carl Icahn revealed that he had taken a stake in AIG (AIG), and was agitating for the insurance company to be split up. While the exact size of Icahn’s position is not yet known, he was nevertheless pugnacious in his call for AIG to split into three companies. Icahn wants the insurer to pursue tax-free separations of its life and mortgage insurance businesses in order to avoid the federal government’s designation of AIG as a “systemically important financial institution.” Icahn also wants the insurer to focus more heavily on cost controls in a bid to bring them in line with peers’.
Icahn certainly came out swinging in his public letter to AIG CEO Peter Hancock, noting that “the company continues to severely underperform its peers and is now facing an increasingly onerous regulatory burden which will only further erode its competitive position. Despite definitive action on the part of Congress and regulators to encourage this company to become smaller and simpler by splitting up, you have shown no sign of urgency and have chosen a ‘wait and see… for years’ strategy void of decisive leadership.” Icahn doesn’t tap dance around the issue, and urges the behemoth to do what every other major multiline insurance company has done in recent years – break up.
How much could AIG be worth in a breakup? Icahn quotes activist investor John Paulson’s valuation of $100 per share for the combined post-split entities, up more than 60% from the stock’s current level.
With a market cap of $77 billion, AIG is too big for Icahn to acquire a large stake in. The activist investor has been remarkably successful, even with stakes in the single-digit percentages, at getting boards to listen to his proposals and forcing some change even if it wasn’t all that he had wanted. Witness his success with the juggernaut Apple (AAPL), of whom he owns less than 1%. He was also successful at splitting up eBay (EBAY) and PayPal (PYPL), even after former CEO John Donohoe nixed the idea of a split in early 2014. A mere eight months later the company was breaking itself up.
So don’t take Peter Hancock’s effective dismissal of Icahn too seriously, especially when Icahn comes out swinging: “I cannot fathom how you could ignored repeated requests from shareholders to execute a plan that would release billions of dollars of capital, free the company from onerous excess regulation, owning stock in three separate, market-leading insurance franchises.” Icahn has a track record of getting things done.