Paulson & Co. Inc.’s John Paulson, a famed hedge fund manager who owns 37.5 million shares of The Hartford Financial Services Group (8.4 percent of the total), is calling on the insurer to split itself into two companies.
In a filing with the U.S. Securities and Exchange Commission on Tuesday, Paulson called for the spinoff of Hartford’s property and casualty insurance business.
In a letter to The Hartford’s Chairman, President and CEO Liam McGee included in the SEC filing, Paulson wrote” a spinoff would produce an increase in value for Hartford shareholders of 40 – 60%+ above the unaffected share price. This valuation range is also consistent with Goldman Sachs’ estimate of a valuation enhancement on the order of 70%.”
Paulson noted that a spinoff 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, distribution channels and capital requirements.
- Enable each of the respective companies to achieve a multiple consistent with its industry, which, for the property casualty business, would mean a multiple of approximately 1.1x book value versus Hartford’s current multiple of 0.4x — the lowest of any major US insurance company.
- Reduce complexity, which limits sell-side coverage and investor interest.
“Investor dissatisfaction with Hartford’s current direction is reflected in your stock performance,” wrote Paulson. “Hartford’s share price fell by 38% in 2011 while P&C peers rose by 14%, and even declined more than Life peers which fell 23%.”
Paulson added that his firm believes if The Hartford separated its P&C and Life branches, the two companies would be valued at a combined $32 per share, “resulting in immediate share price appreciation of more than 60% above the $19.12 price on February 7th before Hartford’s fourth quarter earnings call.”
During after-hours trading on Tuesday, shares of the company rose 6.5 percent.
Connecticut-based The Hartford had 2010 revenues of $22.4 billion. During the financial crisis in 2009, it was one of three insurance companies to receive a federal bailout. The insurer repaid its $2.4 billion in TARP bailout in 2010.