AIG Advisor Group Sold to Lightyear Capital and PSP Investments

American International Group Inc. is selling its broker-dealer network, AIG Advisor Group, to Lightyear Capital and Canadian pension manager PSP Investments. The terms of the deal were not released, but the transaction is expected to close in the second quarter of 2016.

The AIG Advisor Group is comprised of four broker-dealers– FSC Securities Corporation, Royal Alliance Associates, SagePoint Financial, and Woodbury Financial Services. It is the nation’s largest broker-dealer network with more than 5,200 registered reps and affiliated financial advisors and $160 billion in client assets under administration.

Details about the proposed deal began to leak on Sunday after The Wall Street Journal reported that anonymous sources close to the company named Lightyear as the potential buyer.

Lightyear, a private equity firm founded by Donald Marron, has been vying for ownership of the Advisory Group since 2009 when AIG nearly collapsed in the wake of the financial crisis..

The deal fell through, so in 2010, Lightyear acquired three independent broker-dealers from ING which were rebranded as Cetera and grew to approximately 6,600 advisors, up from 4,000 at the time of the acquisition. Cetera was sold to RCS Capital in 2014 for $1.2 billion.

“We are pleased to be acquiring Advisor Group. Lightyear’s commitment to the asset and wealth management sector is substantial and one where we have a deep heritage. We look forward to working with Advisor Group and helping them expand the business,” added Donald Marron, chairman and founder of Lightyear.

Investment funds affiliated with Lightyear and PSP Investments will have the majority of the seats on Advisor Group’s board of directors. Erica McGinnis will continue in her role as chief executive officer of Advisor Group. Valerie Brown, former chief executive officer of Cetera Financial Group, will serve as executive chairman of the board.

AIG also announced a series of strategic actions, organizational changes, and operating improvements “to create a leaner, more profitable and focused insurer.”

The board is expected to return at least $25 billion of capital to shareholders over the next two years via buybacks and dividends without compromising the utilization of the company’s deferred tax assets. It approved the IPO of up to 19.9 percent of United Guaranty Corporation as a first step towards a full separation.

AIG will also create nine “modular” business units with “greater end-to-end accountability”, each with its own specific financial metrics. AIG will create a new “legacy” portfolio to hold non-strategic assets and has appointed Charlie Shamieh as Legacy CEO.

AIG also announced targeted expense reductions of $1.6 billion within two years

President and CEO Peter Hancock, said, “The creation of more nimble, standalone business units that can grow within AIG or be spun out or sold allows us to do what is in our shareholders’ best interests.”

Activist investor Carl Icahn has been leading the call for the company to break up into smaller divisions. In a letter to the board published last week, Icahn said that AIG must “focus on transforming the company into a competitive, pure play property and casualty insurer by committing to sell, spin, or otherwise separate non-core operations to de-conglomerate and apply to de-SIFI.”

Systemically Important Financial Institutions are more heavily regulated compared to other firms because their collapse could seriously affect the U.S. economy.

However, the firm is not on board with dismantling the company. Douglas M. Steenland, AIG’s non-executive chairman, explained, “After careful consideration, AIG believes that a full breakup in the near term would detract from, not enhance, shareholder value. A lack of diversification benefits would reduce capital available for distribution, and there would be a loss of tax benefits. Being a non-bank SIFI is not currently a binding constraint on return of capital.”