Summary
On March 9, 2011, American International Group, Inc. (AIG) announced the adoption of a Tax Asset Protection Plan. This plan is designed to safeguard AIG's future ability to utilize significant tax benefits, specifically those related to net unrealized built-in losses and other tax attributes. The primary concern is the potential limitation or loss of these tax benefits if AIG experiences an "ownership change" as defined by U.S. federal income tax law.
Key Highlights
- 1AIG adopted a Tax Asset Protection Plan to preserve its tax benefits related to net unrealized built-in losses.
- 2The plan aims to prevent an "ownership change" under IRS rules, which could significantly limit the use of these tax benefits.
- 3A dividend of one 'Right' per common share was declared, exercisable at a future 'Separation Time'.
- 4Each Right allows the holder to purchase Participating Preferred Stock, designed to deter large stake acquisitions.
- 5The plan limits any single shareholder from acquiring 4.99% or more of AIG's outstanding common stock, with exceptions for certain existing holders and specific transactions.
- 6The Rights will expire on March 9, 2014, unless extended, redeemed, or the tax benefits are fully utilized or no longer available.
- 7AIG also filed a Certificate of Designation for its Participating Preferred Stock.
Frequently Asked Questions
The primary purpose of the Tax Asset Protection Plan is to prevent AIG from undergoing an "ownership change" for U.S. federal income tax purposes. Such an ownership change could severely limit AIG's ability to utilize valuable tax benefits, such as those arising from net unrealized built-in losses.
The plan works by issuing 'Rights' to existing common shareholders. These Rights are designed to make it prohibitively expensive for any single person or group to acquire a beneficial ownership of 4.99% or more of AIG's outstanding common stock. If such an acquisition occurs, the Rights could allow shareholders to purchase AIG's Participating Preferred Stock at a significant discount, diluting the acquirer's stake and protecting AIG's tax attributes.
The Rights will not be exercisable until a "Separation Time," which is triggered by certain events such as a person commencing a tender offer that would result in them becoming an "Acquiring Person" (owning 4.99% or more) or when AIG announces such an acquisition. The Rights will expire on March 9, 2014, unless they are redeemed earlier by AIG's Board, the tax benefits are fully utilized, or an "Exchange Time" occurs where the Board may elect to exchange the Rights for common stock.
No, as long as the Rights are attached to the common stock and before the Separation Time, holders of Rights do not have any shareholder rights such as voting or receiving dividends. These rights are separate from the rights associated with owning AIG common stock directly.