AerCap has jumped since agreeing in December to buy AIG’s International Lease Finance Corp. for 97.6 million shares and $3 billion in cash. Based on yesterday’s closing price of $47.52, the equity portion of the deal is valued at $4.6 billion, compared with $2.4 billion when the transaction was announced. That adds to the potential proceeds for New York-based AIG five months after the AerCap deal replaced a failed all-cash sale of ILFC to a group of Chinese investors.
“This was an asset that no one thought they could sell,” said Josh Stirling, an analyst at Sanford C. Bernstein & Co. “They did sell it. They’re making $2 billion more.”
AIG Chief Executive Officer Robert Benmosche said last week that the company will evaluate its plans for using the funds after the ILFC sale is completed. Cash will probably be used to repurchase shares this year, said Charles Sebaski, an analyst at BMO Capital Markets.
“I don’t see that there’s any other need for cash in the business,” he said by phone.
AIG faces restrictions on selling the 46 percent stake that it will hold in Schipol, Netherlands-based AerCap after the deal closes. The insurer can sell a third of its stock nine months after the transaction is completed, two-thirds after a year, and the rest three months later.
Fluctuations in the shares of AerCap and AIG may affect how the insurer deploys its funds, Sebaski said. If AIG’s shares still trade below book value, the insurer will probably favor buybacks. If the shares rally, dividends may become more attractive, he said.
“It’s a little early to get too excited,” Sebaski said. Because the stake is so large, “they can’t turn around and sell it at market price.”
See also: AIG earnings fall
The combination of AerCap and ILFC creates an aircraft lessor that will rival General Electric Co.’s unit as the largest in the industry.
“AerCap is poised to become one of the two premier global aircraft leasing franchises by month’s end with the closing of the ILFC transaction,” Gary Liebowitz, a New York-based aerospace analyst with Wells Fargo & Co., wrote in a May 7 research note.
The firm will gain ILFC’s $21 billion order backlog and an aircraft fleet with a carrying value of $32.1 billion as of March 31, Liebowitz said. AerCap is buying the planes at “unambiguously below-market prices,” he said.