March 23, 2007 / 5:22 PM / 10 years ago

Blackstone IPO could be big return for insurer AIG

NEW YORK, March 23 (Reuters) - An initial public offering by Blackstone Group LP [BG.UL] could allow insurer American International Group Inc. (AIG.N) to make nearly a 20 times return on its stake in the investment banker.

Blackstone, best known for taking public companies private, filed late on Thursday for an offering worth up to $4 billion. The company would sell about 10 percent to 15 percent of itself, making its total value up to $40 billion.

AIG, the world's largest insurer, bought 7 percent of Blackstone back in 1998 for $150 million - at the time one of the largest investments ever in a leveraged buyout firm.

If the Blackstone IPO goes off at the high end of expectations, that would now make AIG's stake worth as much as $2.8 billion, analysts said.

"It's a good payoff for AIG," said Donald Light, an analyst with Celent LLC. "AIG has been more innovative and forward-looking with its investments than other insurers."

But AIG shares traded down on Friday after last night's announcement by Blackstone. They were off 0.2 percent or 10 cents, at midday at $68.11 after trading as low as $67.90.

AIG has the investment in its Global Investments Group, according to company spokesman Chris Winans. At the end of 2006, the group had a total of $670.4 billion of investments, according to its annual report, he said.

The gain on its investment in Blackstone would be reflected in AIG's book value. Since the insurer's book value is already about $102 billion, it would not move the needle enough to get investors excited, analysts said.

"It's so huge that a $2.8 billion gain doesn't look that big," said Jim Albers, who follows AIG for Victory Capital Management.

In addition to its 7 percent stake, AIG also committed to give Blackstone $1.2 billion of investment capital back in 1998. But AIG would have recorded gains on that investment annually since then, analysts said.

AIG's shares hit their 12-month high on December 18 at $72.97 and have not reached that level again, despite reporting fourth-quarter earnings that were eight times higher than a year before.

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