Analysts expect 20th Century management changes.

Shakeup expected after American International infusion

American International Group's deal to infuse capital into 20th Century Industries Inc. is a good move for both sides, but it is also a likely harbinger of top-level management changes at the latter, according to securities analysts.

"It's good for everybody -- obviously for the 20th Century people because they're still in business, and it's good for AIG, because for $432 million they end up with 45 percent of the company," said Ira Zuckerman, a securities analyst with SBS Financial Group Inc. in Hartford, Conn.

"It also gives AIG a toehold in the personal lines business, which they had been seeking for years," he noted.

Zuckerman added that the deal would eventually prove dilutive to 20th Century shareholders, but that it was preferable to the company's prior situation.

Racked by $815 million in homeowner and automobile loss claims from the Jan. 17 Northridge earthquake and its stock price plummeting, 20th Century could no longer fulfill its surplus obligation of $250 million, as required by state insurance regulators.

State Insurance Commissioner John Garamendi said 20th Century should be able to meet the state's surplus requirements after the AIG deal is completed.

After the announcement on Sept. 27, 20th Century's over-the-counter stock rebounded 30 percent in a matter of days, trading in the $12 a share range last week. It was as low as $8.75 a share earlier in the month. It had a 52-week high of $30.875.

"I think it's a great deal for AIG; it also effectively saves 20th Century and gives them a nice backstop for any events that occur down the road," said Blair Sanford, a securities analyst with Hoefer & Arnett Inc. in San Francisco.

New York-based AIG and Woodland Hills-based 20th Century signed a letter of intent on Sept. 27 for AIG to provide 20th Century with $216 million in cash.

In exchange, AIG received $200 million worth of preferred stock, warrants to buy common stock and discretion to purchase up to 15 percent of 20th Century's outstanding common stock in the future. AIG also has the right to appoint two directors to 20th Century's 11-member board. AIG's preferred stock can later be converted to common shares at $11.33 a share. Its 16 million new warrants would allow it to purchase 16 million shares of common stock at $13.50 a share.

The preferred shares also pay a nine percent dividend that amounts to $18 million a year, which can be paid in cash or additional stock. Sanford predicted AIG will take the dividend in stock to continue building its equity in 20th Century. He also believes that the deal's implications transcend what is on paper.

"There likely is going to be some (management) changes," Sanford said. "AIG is a strong company and there is little doubt they will have their say as to how 20th Century is run."

Neil Ashley, 20th Century's 71-year-old CEO, retired as president in 1989, but was named to the company's top post last year in what was intended to be an interim role, filling the gap after chairman and founder Louis Foster stepped down.

"The name 'interim' is very, very important," Sanford said.

Ashley could retire in the near term and be replaced by someone picked by AIG's management, Sanford and others believe. There could also be changes to 20th Century's 11-member board of directors past the two seats AIG gained as part of the infusion deal.

"(Maurice) Greenberg will eventually run the show," said another securities analyst who asked not to be identified, referring to AIG's chairman and chief executive.

Officials at 20th Century declined comment on the specifics of the deal, noting that is not yet official. Company spokesman Ric Hill said a stockholders' meeting will be scheduled before year's end to vote on the deal.