NEW YORK ( TheStreet) -- Bailed out insurer American International Group ( AIG) is finally walking away from its stake in The Blackstone Group ( BX) after holding an over-decade long investment in the private equity firm. AIG's reported $500 million stake sale may end an "overhang" on Blackstone shares, while it also would be another capital raising step for the still government owned insurer to pay back billions in bailout investments.
AIG CEO Robert Benmosche
AIG was reported by CNBC to have sold its $500 million stake in Blackstone on Friday morning, closing out a longtime holding in the company. In July 1998, AIG bought a 7% share in then privately-held Blackstone for about $150 million. AIG converted its 35.7 million Blackstone partnership units into common shares in 2010 and subsequently sold 10 million shares, netting $134.1 million. While the stake sale is significant for AIG as it looks to raise capital to repay government bailout funds, the move may be a further indication of a distancing in the relationship between the two firms that may extend beyond share holdings. A Blackstone spokesperson declined to comment on the reports of AIG's sale. In 2011, TheStreet reported that the long-held relationship soured with the arrival of Chief Executive Robert Benmosche. In late 2010, as AIG began selling its Blackstone investment, the firm also ended its business relationship with the private equity giant, which was a key crutch during the financial crisis. Now, as AIG continues to sell assets to pay down its government loans, Blackstone isn't likely to be its sole adviser. AIG shares rose roughly 1% on reports of the stake sale in Friday trading, while Blackstone shares fell 2.5% to $15.34. AIG shares have gained nearly 30% in 2012, while Blackstone shares are up nearly 10%.
In a note to clients reacting to the reports, Citigroup analyst William Katz wrote that the share sale would remove a "major overhang" on Blackstone shares because it will help to diversify the company's investor base. During the financial crisis, Blackstone was a key adviser to AIG as it teetered near bankruptcy and worked out a lifesaving federal government bailout. Former AIG CEO Maurice R. Greenberg had served as a member of Blackstone's advisory board. The insurance conglomerate is also a large investor in many of Blackstone's investment funds. To wind down a conglomeration of businesses and repay bailout loans, AIG has been one of the biggest sellers of assets since the financial crisis. For more on AIG, see 5 stocks insiders love right now and why AIG's recent fourth quarter profit doesn't matter for now. -- Written by Antoine Gara in New York