Billionaire John Paulson, who controls an 8.4 percent stake in Hartford Financial Services Group Inc. (HIG), filed a document with regulators so he can approach other investors about his plan to break up the insurer.
“We have done exhaustive research on the challenges and opportunities of the Hartford and believe that a spinoff would produce an increase in value for Hartford shareholders,” the hedge fund manager said in a letter to Chief Executive Officer Liam McGee that was published today in a statement. Hartford said in a separate statement it is willing to talk to Paulson and other investors about his proposal.
Paulson is appealing directly to shareholders as McGee resists pressure to split the 201-year-old firm into separate property-casualty and life-insurance companies. Hartford, which fell 39 percent in New York last year, is valued at less than half its book value. That compares with a price-to-book ratio of about 0.7 for MetLife Inc., the biggest U.S. life insurer, and almost 1 for property-casualty rival Travelers Cos.
“Hartford trades at lower valuation multiples than any of its U.S. insurance peers,” Paulson said in the letter. “Addressing these issues should be Hartford’s highest priority.”
Paulson pushed for the split on Feb. 8 in an investor conference call hosted by the company to discuss fourth-quarter results. Later that day, Tamara Kravec, a managing director at Hartford shareholder NWQ Investment Management Co., said the insurer should “take aggressive action and deliver value” to shareholders.
“We recognize there are potential benefits to a separation,” Hartford said in a statement today. “While there are challenges to successfully executing a separation, we welcome Paulson’s views and look forward to continued dialogue with him and other shareholders.”
Hartford surged 5.5 percent to $20.90 at 6:20 p.m. in late New York trading. Paulson published the letter after the close of regular trading on the New York Stock Exchange.
McGee told Paulson that a separation probably wouldn’t “create shareholder value,” and the company cited credit ratings and the need for regulatory approvals among the challenges.
Paulson & Co. held 8.4 percent of Hartford as of Dec. 31, while NWQ’s stake was about 5.7 percent, according to data compiled by Bloomberg. State Street Corp. and Germany’s Allianz SE each had holdings of more than 5 percent, according to the data. Hartford is based in the Connecticut city of the same name.
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