2/14/2012 8:25 PM ET
(RTTNews) - Hedge fund Paulson & Co., Inc., which holds an 8.4 percent stake in insurer Hartford Financial Services Group Inc. (HIG: News ), said Tuesday that it has filed with regulators so that it can hold talks with other Hartford shareholders about a breakup of the 201-year-old insurance company.
Paulson said that it has filed a 13D with the U.S. Securities and Exchange Commission so that it can start talks with Hartford shareholders, and also continue talks with Hartford's management relating to a spinoff of Hartford's property and casualty or P&C insurance business.
In a letter to Hartford's Chairman, President and Chief Executive Officer Liam McGee, hedge fund manager John Paulson said that a spinoff would produce an increase in value for Hartford shareholders of 40 percent to 60 percent above the unaffected share price.
Paulson noted that the a spin-off of Hartford would create two pure play insurance companies - one in life and one in P&C - whose management is focused solely on each companies own strategies.
"Given the extremely poor performance of Hartford's stock and the fact that Hartford trades at lower valuation multiples than any of its U.S. insurance peers, addressing these issues should be Hartford's highest priority. That is why we were disappointed that management, on the February 8th earnings call, only addressed the potential "challenges" of a separation," Paulson said in the letter.
Paulson said it had shared its view regarding the benefits of a tax-free P&C spinoff initially in November 2011 and again in December 2011. Further, the hedge fund said it has considered all other strategic alternatives, including share buybacks, the sales of individual businesses, the sale or IPO of minority stakes in Life and P&C, but none came close to the "dramatic increase" in shareholder value to be created by a spinoff.
Paulson noted that while multi-line insurers were common twenty years ago, almost all U.S. multi-lines other than Hartford have chosen to separate P&C and Life in order to increase shareholder value. These companies include Travelers Companies Inc. (TRV), CNA Financial Corp. (CNA), Lincoln National Corp. (LNC), Aetna Inc. (AET) and Cigna Corp. (CI).
Responding to the regulatory filing by Paulson & Co, Hartford said it recognizes there are potential benefits to a separation of the property and casualty insurance or P&C, and life companies, including those outlined by Paulson & Co.
The company said that while there are challenges to the successful execution of a separation, it welcomed Paulson's views and look forward to continued dialogue with him and other shareholders. The company added that it is evaluating its strategy and business portfolio with the goal of delivering shareholder value.
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