American International Group will sell 100 million shares and the U.S. Treasury will sell 200 million shares, as the bailed-out insurer begins its return to public control.

The offering, worth about $8.89 billion at Tuesday's closing prices and without Treasury's over-allotment option, is much smaller than had been expected. When Wall Street banks offered their services to manage the stock sale in January, there was talk of an offering of more than $20 billion.

In the meantime, AIG shares lost more than one-third of their value. What had been a paper profit for the Treasury of more than $27 billion is now on the verge of being wiped out, with AIG shares less than $1 above the government's $28.72-a-share break-even point.

AIG did not indicate a price for the offering in the prospectus filed on Wednesday. The U.S. Treasury also has the option to sell an extra 45 million shares to cover any over-allotments, which would raise the value of the sale to about $10.22 billion.

Assuming the Treasury sells only the 200 million shares, the government's stake in AIG would fall to 77 percent from the current 92 percent.

(Reporting by Ben Berkowitz; Editing by Derek Caney and Maureen Bavdek)