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AIG sells its stake in United Guaranty

NEW YORK, N.Y. – AIG on Monday said it is selling its stake in United Guaranty to Arch Capital Group in a cash-and-stock deal worth $3.4 billion.

The move is part of New York-based American International Group Inc.’s ongoing effort to streamline its organization.

United Guaranty Corp. is a major private mortgage insurance company. Arch Capital, based in Bermuda, writes specialty lines of property and casualty insurance and reinsurance, as well as mortgage insurance and reinsurance.

The deal includes $2.2 billion in cash, $250 million of newly issued Arch Capital perpetual preferred stock and $975 million of newly issued convertible non-voting common-equivalent preferred stock. The transaction still requires regulatory approval.

AIG in January announced its plan to spin off United Guaranty amid pressure from activist investor Carl Icahn, who has called for AIG to be split into three separate companies.

Icahn has argued that AIG is “too big to succeed,” playing on the phrase “too big to fail,” a label put on the company during the financial crisis. The government said it was forced to prevent the total collapse of AIG at the height of the crisis in 2008 because it was reasoned that its demise would have a cascading effect, threatening the global financial system.

The U.S. bailed out AIG at a cost of $85 billion, money the company has since repaid. It has cut its business dramatically to focus on its core insurance operations in subsequent years.

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This story has been corrected to show that in January AIG announced plan to spin off United Guaranty, not Arch Capital.