AIG Crafts Plan to Protect Tax Assets
Bailed-out insurer American International Group Inc (NYSE:AIG) set up a plan to protect tens of billions of dollars in valuable tax assets by discouraging investors from taking large new positions in the company.
As of year-end, AIG had what is known as a "federal net operating loss carryforward" of $32.3 billion on its books. That asset, which investors consider extremely valuable, allows AIG to offset some taxes on future profits.
But AIG would be limited in its use of those assets, the company said on Wednesday, if it experiences what is considered an "ownership change" under the tax code.
AIG and the U.S. Treasury, which owns 92 percent of the company, are planning a share offering that is expected in late May. The number of shares on offer, and the changes in investors' holdings that would result, could have put the company on the wrong side of the complicated rule.
Shareholders as of March 18, and holders of any new shares issued after that date, will receive a dividend of one preferred share purchase right for each common share.
"The plan is designed to reduce the likelihood that AIG will experience an ownership change by discouraging any person from becoming a 5 percent shareholder," the board said in a statement.
Under the plan, if any person or entity acquired 4.99 percent of AIG's shares or more, their preferred share purchase rights would be voided, and all the other rights would be exercisable. That would create dilution, the prospect of which would presumably discourage any investor from buying up to that level in the first place.
The rule has become an issue for companies with substantial government involvement, like Citigroup (NYSE:C). In late 2009 the IRS issued a special ruling that the government's sale of Citigroup shares would not put the company in violation of the ownership change rules.