Hands untied

AIA: Freedom at last for AIA. The Asian insurer’s $30.5 billion initial public offering has priced at the top of its indicated range in Hong Kong. Factoring in the extra slug of shares to be sold if early trading goes well, the float will cut the stake held by beleaguered US parent American International Group to just 33 per cent. It’s the result that AIA’s new boss, Mark Tucker, AIG and IPO lead manager Goldman Sachs needed.

Tucker was hired after a bid for AIA from UK rival Prudential collapsed early in the summer. Shareholder pressure forced Prudential to try cutting the agreed price by 14 per cent —which would have taken its offer down to $30.4 billion. Ever since, this figure has been the number the AIA’s valuation had to beat in any alternative transaction. The fact AIA pulled it off may be a sign of quality. But the recovery in equity markets will surely have helped.

AIG, meanwhile, will emerge with just over $20 billion with which to pay back some of its bailout debt to the US Federal Reserve. Less than two years ago, AIG had been toying with the idea of selling the whole of AIA for that amount. By retaining a likely 33 per cent stake, AIG retains exposure to a company whose valuation — 1.2 times 2011’s estimated embedded value — is full but not stretched.

Then there’s Goldman. The Wall Street bank took the lead role in AIA’s float, despite being party to some of the dealings that got parent AIG into trouble in the first place. It had previously advised AIA on the possible Pru deal. AIG President and Chief Executive Robert Benmosche once quipped that he no longer wanted to “feed Goldman Sachs’ bonus pool”. Any friction that remained between AIG and the firm should be at least eased, if not put to bed, by the AIA windfall.

The question is what AIA does with its freedom. After the destabilising Prudential bid, not to mention AIG’s own near-collapse, the primary task for Tucker in the coming months is to get AIA back to optimum operating performance. But with AIA now free to decide its strategy, and its newly listed shares offering a credible acquisition currency, a tilt at former predator Prudential within the next two years could be the logical strategic leap.