Bid for 21st Century creates surprise, some complaints; valuation of AIG bid called 'very generous'.

The insurance behemoth American International Group Inc., which already owns 61.9 percent of the outstanding shares of Woodland Hills carrier 21st Century Insurance Group, is itching to buy the rest.

New York City-based AIG last month inked a letter to the board of 21st asking to purchase the remaining shares for $690 million, or $19.75 a share in cash.

The amount raised some eyebrows among those that follow the companies.

Analyst Meyer Shields of Stifel Nicolaus in a report called the deal "very generous" since it valued the company's worth at almost 20 times its estimated profit for 2007.

"We're still very surprised by the valuation." Shields said later. "Given our negative expectations for California auto insurers in 2007, we frankly expected AIG to give the shares a chance to settle down before making a bid."

With that price, the buyout is not being ruled out completely--21st has created a special committee of legal counsel and financial advisors to weigh the bid. AIG's stake in 21st has also been widely seen as more of an investment versus any desire by AIG to operate it.

The company, which is part of the Dow Jones Industrial Average, has the purse strings: its 2005 income totaled $10.4 billion.

However, some 21st shareholders aren't leaping for joy--they're suing AIG claiming the company is trying to "squeeze out" minority holders by not paying a fair price.

The shareholders filed a lawsuit Jan. 26 in L.A. Superior Court trying to block the acquisition and hire "truly independent" advisors and committee members.

The shareholders are seeking class action status and a decision is likely many months away.

Officials with 21st Century' did not return calls.