From AIG 8-K:
In connection with the revolving credit facility, AIG issued a warrant to the Board of Governors of the Federal Reserve ("Federal Reserve") that permits the Federal Reserve, subject to shareholder approval, to obtain up to 79.9% of the outstanding common stock of AIG (after taking into account the exercise of the warrant). AIG anticipates calling a special meeting for such purpose as promptly as practicable.
A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated by reference herein.
Definition of outstanding shares: includes restricted shares (shares owned by officers and insiders of the company) as well as shares held by the public. Shares that the company has repurchased or retired are not considered outstanding stock.
Regardless whether or not the shareholders approve or not, why there is dilution even if USG buy 80% of outstanding shares?
Any CPA here to explain?
Not only is this not a rumor, it is a fact. Liddy gave a statement earlier today, through Bloomberg, and bluntly said that they do NOT intend to liquidate the company, but to sell some assets, pay off whatever balance is they owe and take back control of the company.
Warrants are equity participation, but only if exercised. You should also note the statement about "with shareholder approval" and "meeting to be scheduled as soon as practical". 1) do you intend to vote yes for dilution? 2) When exactly is "practical", meaning perhaps "never"
Common sense: if the government exercises 80% of their warrants, the stock float will be diluted by 80%.
But that won't happen if asset sales go well--the government does not want to take over AIG, just keep it from going bust.
So, Govt gets interest on the $80 billion, and we AIG longs get a nice profit (2x up to 15x the current price, I estimate).
I totally agree with your opinion. The government is not interested in taking over AIG. It wants its mony back plus interest.
The key is, for AIG to be able to sell some of its assets in an orderly fashion (Not in a fire sale, which would have been), and pay back the government. At that time the net worth of the company obviouly would be less, but far above $2.50 per share as it is these days.
So the upside is huge, but the downside is limited to what you put down for buying some shares based on your risk tolerance.
ALL in my opinion. Do your own D.D.
Once AIG starts selling its parts, they won't need to use up all of the $85B line of credit as their credit ratings at Moody's and S&P would go up. I predict they raise $50B by selling parts of their business and pay back US govt in 6-12 months leaving a clean business that generates $20-25B revenue which would be valued at $25B-30B market cap, bringing share value to around $10. Ofcourse there would be no dilution if they pay the loan back. In 2 years this would be a $20 stock.
yeah but here's the rub, it will take a while and the warrants are sitting there like a great big bear, staring at the common shares saying 'I dare you to'. So, what happens? nothing. sideways, dead money, probably drifts lower and then, IF, they can actually sell assets for cash, there may be a company left for the common shares to benefit from. but you donks just dont get it: the company will be much much smaller. its a joke that anyone is trying to establish a fair market value for a labyrinthian mess created by Greenberg and run by know nothings.....