Instant Analysis: AIG Unloads Lloyd's-Related Assets in $1.1 Billion Deal

By Eric

What happened?

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Insurance giant American International Group (NYSE: AIG) is about to slim down a bit. The company has reached an agreement to sell Ascot, its Lloyd's of London platform, to the Canada Pension Plan Investment Board. The sale comprises AIG's 20% stake in specialty insurer Ascot Underwriting Holdings and its full stake in an associated unit, funding vehicle Ascot Corporate Name.


AIG said the total value of the deal is $1.1 billion. However, that includes CPPIB's recapitalization of Ascot in order to meet Lloyd's capital requirements. AIG said it would reap around $240 million net in cash upon completion of the deal.

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The sale is subject to approval from the relevant regulators.

Does it matter?

AIG isn't quite in fire-sale mode, but it's happy to shed nonessential assets. That's because earlier this year it pledged to return $25 billion in capital to its shareholders. Hiving off certain units brings in quick cash, while also slimming the company down and narrowing its focus.AIG obviously felt that Ascot wasn't critical enough to its operations to keep in the portfolio.

AIG has been under pressure from a pair of veteran activist investors, Icahn Enterprises' (NASDAQ: IEP) leader Carl Icahn and John Paulson from Paulson & Co. Both men know how to bring the heat, and they've been good at turning up the temperature. They did so to the point that in February, both were effectively givenone seat apiece on the board of directors.

In return for their board seats, both agreed to mute their criticism of the company for several months and to not conduct a proxy fight for control this year.

Perhaps the Ascot sell-off will help keep them satisfied that AIG is going in a direction they like. Regardless, the company is on the hook for that $25 billion, so we shouldn't be surprised to see more asset divestments.

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Eric Volkman has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.