Monday, March 22, 2010

"Greenberg sells AIG stock to UBS for $278 million"

The stock is trading down 3 1/2% at $33.62.
From Reuters:
The former chief executive of American International Group Inc, Maurice "Hank" Greenberg, reached a deal to sell most of the shares he holds in the insurer to a unit of Swiss bank UBS.

Greenberg's investment vehicle, Starr International Co, entered into a so-called variable prepaid forward-sale agreement with UBS Securities LLC last week under which it will pocket $278.2 million upfront, according to a filing late Friday with the U.S. Securities and Exchange Commission.

In exchange, Starr will deliver a total of 10 million shares in four transactions of 2.5 million shares each. The first delivery is due in just under three years from now, with the remaining deliveries in each of the three months immediately after that.

The U.S. Internal Revenue Service said on its website that the up-front cash payments in such deals typically represent 75 to 85 percent of a stock's current fair market value.

The proceeds of the deal with UBS effectively come to $27.82 per share, a 20 percent discount compared with AIG's closing price on Friday of $34.80....MORE

The Wall Street Journal adds:

...The structure, known as a variable prepaid forward sale, is designed to help Mr. Greenberg limit his exposure to volatility in AIG's share price. Shares of the company, 80%-owned by the U.S. government, closed Friday at $34.80, up 0.5%.

Variable prepaid forward sales are often made between an executive and a brokerage firm. Under the structure, the executive agrees to deliver a number of shares to the brokerage in the future in exchange for cash upfront. Those payments can equal between 75% and 90% of the shares' value when the deal was struck.

If the share price falls during the contractual period, the brokerage absorbs the loss. If it rises, the executive shares in the gains up to a specified point. Either way, the executive locks in value, minimizes losses and retains a shot at some gains. The executive also maintains voting rights for a time....

...Under the terms of the agreement, Starr International shoulders no risk if the shares fall below about $31.22 and will receive additional payments only to about $46.83 per share. UBS will pocket gains if the shares trade above about $46.83.