A day and a half before AIG is due to price its large secondary offering of stock, the deal’s underwriters are telling investors they have enough orders to price the deal at $29 to $30, according to people familiar with the matter.
Pricing the insurer’s secondary shares at that level would be both an economic and a psychological victory for the U.S. Treasury, which considers AIG’s fair value to be considerably north of $30.
The government took what amounted to a majority stake in the company during the depths of the financial crisis, and will be made whole on its investment only if the shares in Tuesday’s offering are priced at $28.70 or more.
In the days and weeks preceding the deal’s announcement, investor chatter that big institutions wouldn’t pay more than $25 per share prompted the Treasury to consider delaying the deal until it could come to market in a more favorable climate.
But since May 10, when AIG and its biggest shareholder opted to move ahead with a 300 million share offering, the insurer’s stock has enjoyed an upswing—only to lose some ground on Monday, the day before the deal is set to be priced.
Some investors, however, still say that at $29 or $30, AIG is still too expensive for their taste. One concern, according to one hedge-fund investor who says the stock isn’t attractive to him at more than $27 per share, is that the government will upsize Tuesday’s deal and sell additional shares in an effort to seize on market optimism.
An increase in the number of shares sold could create more of an overhang on the stock, which is already dogged by the fact that with a 92 percent stake in the insurer, the Treasury still has billions of dollars in AIG to sell.
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