By SERENA NG And RANDALL SMITH
Shares of American International Group Inc. sank a day after the insurer and the U.S. government sold $8.7 billion in stock. It was the year's worst first-day performance of U.S. follow-on stock offerings over $1 billion, according to data provider Dealogic.
AIG on Wednesday fell $1.18, or 4%, to $28.28, in 4 p.m. New York Stock Exchange composite trading as the broader U.S. stock market edged higher. The stock ended the day 2.5% below the $29 price at which the Treasury and AIG sold a total of 300 million shares on Tuesday.
Of the other 14 follow-on offerings over $1 billion tracked by Dealogic, 11 showed gains of up to 6.3% and three showed losses of 0.1% to 1.8%. A follow-on offering is a sale of stock when a company is already publicly traded.
![[AIGSALE]](http://si.wsj.net/public/resources/images/MI-BJ719_AIGSAL_NS_20110525183903.jpg)
In AIG's case, the stock rose shortly after the offering was launched May 11, then fell. It was priced at a 1.6% discount to the closing market price Tuesday. While AIG has been publicly traded for years, the company has restructured since its 2008 bailout and had to be reintroduced to investors in the latest offering much like in an initial public offering. This week's sale effectively tripled the number of shares in public hands.
Ordinarily, large share sales occur at a slightly deeper 2.3% discount to the last traded price and the stock rises 2% on average from the deal price on the next trading day, according to Dealogic data for 2011.
The offering was tailored to meet the desire of Treasury and company officials to sell the shares above the $28.73 price the government effectively paid for them, according to people familiar with the matter.
Tuesday's sale enabled the Treasury to recoup $5.8 billion of a $47.5 billion investment in AIG shares, and reaped a $54 million profit for taxpayers on the first leg of the share sale. Officials had anticipated a larger profit last year when AIG shares were trading higher.
At current prices, the Treasury is sitting on a roughly $655 million paper loss for its remaining 77% stake in AIG, expected to be sold over at least the next year.
The insurer now has to make progress toward its financial goals to completely exit U.S. ownership.
Still, analysts and people close to the deal said it is too early to gauge the performance of AIG's shares over the long run. It isn't uncommon for stocks to fall soon after companies launch and price large public offerings. A chunk of the AIG shares were sold to hedge funds, according to people familiar with the matter. They may have been quick to sell when the price didn't rise Wednesday morning, the people said.
Other buyers included the Government of Singapore Investment Corp., the Kuwait Investment Authority and Fairholme Funds, according to a person familiar with the matter. Fairholme was AIG's largest private shareholder before Tuesday's sale and had acquired the bulk of its stake before the stock lost over 40% this year.
Underwriters haven't decided whether they will exercise an option that will allow the Treasury to sell up to 45 million additional shares. That option can be exercised within 30 days of the deal.
Maurice R. "Hank" Greenberg, AIG's former chief executive who still remains a shareholder, said he didn't buy any shares in Tuesday's offering and maintains the government should never have taken a majority stake in AIG.
Mr. Greenberg said current CEO Robert Benmosche "has done the best that anyone can do, but [AIG's] performance has to make a difference, and it's going to take a long time to sell all the [government's] shares."
Jim Millstein, the Treasury's former chief restructuring officer who worked on the AIG bailout, said, "it's now clear that the government has a market into which to sell its remaining shares, and it's just a matter of time before it does, and at prices that will fully repay taxpayers."
Mr. Millstein said the deal signifies "the closing of the government-relations chapter in AIG's history, and it's now about the turnaround and recovery of the businesses." The U.S. bailed out AIG in September 2008 in a rescue that at its peak used more than $130 billion.
Following a series of asset sales and a restructuring that saw AIG repay more than $40 billion of its bailout to the Federal Reserve and Treasury over the past year, the company is now principally comprised of a domestic life-insurance group and a global property-and-casualty insurance business. The former has been consistently profitable in recent quarters, but the latter's results have been volatile and investors have concerns about its profitability and claims reserves.
Write to Serena Ng at serena.ng@wsj.com and Randall Smith at randall.smith@wsj.com