The recapitalization of bailed-out insurer AIG is likely to close next week, a person familiar with the matter said on Friday, as the company's shares touched fresh highs on news the deal was getting closer.
American International Group Inc received the largest bailout of the credit crisis, at one point owing the U.S. government just over $182 billion. The government now stands to make a massive profit on the deal with a series of stock sales starting as soon as March.
The company said on Thursday its board had approved the issuance of warrants to buy 75 million shares of common stock, subject to all the parties to the recapitalization agreeing it can close by January 14.
While that does not in itself guarantee the deal will close next week, it was one of the final key steps to finish the transaction. AIG said it will issue a statement on January 12 disclosing whether all the parties have agreed the deal can close by January 14.
A person familiar with the situation, who was not authorized to speak publicly on the matter, said Friday the board's approval of the warrant issue showed the highest degree of confidence the deal will close next week.
Under the terms of the deal, the Federal Reserve Bank of New York will be repaid in full and the U.S. Treasury Department will be left with a 92.1 percent stake in AIG.
The government is contemplating two stock offerings this year to sell most of that stake, people familiar with the plan told Reuters last year. The rest of the shares would likely be sold in 2012.
The source said the company is targeting this March for the first share sale, but due to the complexity of the situation, a sale in May was more likely. The amount to be sold is yet to be determined and will depend on AIG's share price at the time.
Linus Wilson, a professor of finance at the University of Louisiana at Lafayette, estimated on Friday that taxpayers' paper profit on the AIG deal could come to $35.6 billion if the warrants trade at the price he expects.
AIG shares closed up 1.2 percent at $61.18, off an earlier high of $62.87, their best level since late 2008. The shares are up 44.5 percent since December 8, when the company and the government finalized the terms of the recapitalization plan.
The momentum that's building with regard to their ability to extricate themselves from the government is obviously a positive thing, but I think a prudent investor needs to look at the risks that remain, the underlying franchise value and what issues remain with the businesses they plan to retain, said Standard & Poor's insurance equity analyst Cathy Seifert.
Seifert raised her price target on AIG shares to $63 on Friday, though that remains a discount to stated book value.
AIG has been busy on multiple fronts in the last 24 hours, in addition to the warrant issue.
Late Thursday the company said it had agreed in principle to pay $450 million to settle a lawsuit with rival insurers over workers' compensation premiums. On Friday, Taiwanese insurance regulators promised a swift review of AIG's pending sale of insurer Nan Shan Life.
(Reporting by Ben Berkowitz; editing by Derek Caney, Dave Zimmerman, John Wallace and Andre Grenon)