Maurice “Hank” Greenberg, the banished CEO of American International Group, is still waiting for answers why the company he built rushed to sell Hartford Steam Boiler Inspection & Insurance Co. in December at what he and others say was a fire sale price.
AIG sold its Hartford-based equipment insurance unit to Germany’s Munich Re for $742 million, nearly $458 million less than AIG paid for it in 2000. The deal is expected to close in the first quarter.
“To sell it at the price they did was really surprising to me,” Greenberg said in a recent interview with the Hartford Business Journal. “Considering the profitability of Hartford Steam Boiler, the sales price was extremely low. I don’t think it was a good idea to sell it for that little.”
The price concerns Greenberg, 83, the former Wall Street titan who was forced out of AIG in 2005 after 38 years, because he remains the company’s largest shareholder outside the federal government. He reportedly owns about 10 percent of the company.
AIG, once the world’s largest insurer, averted bankruptcy late last year when it received an $85 billion federal bailout, which later ballooned to about $152 billion. In recent months, the company’s market value has plunged from more than $100 billion to less than $3 billion.
Greenberg said he’s concerned that the Hartford Steam Boiler deal may be a sign AIG intends to hastily sell other AIG units because the government is pressing for a quick return on its financial commitment.
“The taxpayer won’t get paid if this continues,” Greenberg warned. “AIG will never get the price of what various subsidiaries are worth in this market.”
Greenberg criticized the Hartford Steam Boiler deal in a Jan. 5 letter to AIG’s board of directors, saying it “can only be regarded as a distressed sale.”
Two Other Potential Bidders
He demanded a full account of the sales process, asking the board members to explain what they did to ensure that Hartford Steam Boiler was “sold for the highest available price.” But Greenberg told HBJ that the company has yet to respond to his concerns.
Adding to his unease, Greenberg said he’d been approached by two other potential bidders for Hartford Steam Boiler who “weren’t given a chance.” He said representatives of Boston-based Liberty Mutual and Switzerland-based Zurich Re said their companies were interested or prepared to make an offer for Hartford Steam Boiler.
“They [AIG] still haven’t given me an explanation for what went on,” Greenberg said.
Spokesmen for Liberty Mutual and Zurich said they do not comment on rumor or speculation. A spokesman for AIG did not respond by press time.
Analyst: ‘A Low Price’
But when Edward Liddy, AIG’s chairman and CEO, was asked on CNBC last month if the company was losing money on the Hartford Steam Boiler deal, he said, “It’s more complicated than you can imagine.”
“If we sold the assets a year or two ago, would we have gotten more? Absolutely,” he added. “But some of the assets you can’t recreate today.”
Michael Paisan, an analyst with Stifel, Nicolaus & Co. in New York, said he too was surprised by the sale price.
“It certainly seems like a low price,” Paisan said. “If they were trying to maximize the value of the company, they would have shopped it around a little while longer. I’m sure they could have gotten bids higher than that.”
Paisan said the federal government is pressuring AIG to repay the bailout loan by selling some of its profitable assets.
“The Hartford Steam Boiler sale represents the desperation AIG is in,” Paisan said. “They need cash and they need it quickly. If AIG wasn’t under the auspices of the federal government, it would have made the sale period much longer.”
Hartford Steam Boiler, which sells equipment breakdown insurance and reinsurance, has 377 employees in Hartford. It had $158 million in after-tax profits in 2007.
“In the grand scheme of things, Hartford Steam Boiler was a very small business segment of AIG,” Paisan continued. “But its low sales price symbolizes what’s likely to happen with other assets the company tries to sell now.”
Years before the bailout, Greenberg built AIG into a highly successful empire. He was forced out in 2005 in the midst of an accounting scandal, which is still under investigation. The company needed the federal bailout last year because it was near collapse under the weight of billions of dollars in bad investments and credit-default swaps.
Greenberg is sensitive about AIG’s downfall and highly critical of the federal government’s handling of the situation. He said forced liquidation of company assets isn’t the right strategy. AIG should have held HSB until a buyer could pay a more realistic price, he said.
Greenberg also said AIG should be allowed to convert its government bailout loan and the preferred stock to a 15-to-20-year loan, reducing the interest and dividend to 5 percent, and reducing the 79.9 percent federal government ownership interest to 15 percent.
That would make it possible to attract private capital and put in a new management team to rebuild the company, he said.
Paisan agreed that extending the term of the loan would be the best move to save AIG, but he also said that’s not the federal government’s top priority.
“The government’s hands are tied,” he said. “They just want to make sure they start getting their money back.”