Whew! Time to exhale as the drama is finally over. Peyton Manning is signed, Tebow was traded and now Hartford Financial Services Group (HIG) will shed several business units in order to increase its focus on its profitable property & casualty business. While the group benefits and mutual fund businesses will also be retained, the annuity business will be effectively shut down and the life, financial services and retirement segments will be sold. The end result, according to CEO Liam McGee is “a company that, in our view, over time will create higher ROEs,” and be less sensitive to the capital markets. The process is expected to take 12 to 18 months.
Although Mr. McGee will disagree – “this was Hartford’s decision” ummm yeah, sure, all you – chalk this one up as a win for John Paulson and for activist investors in general, who have been having a lot of success recently. As you likely know from our earlier articles on this subject (here and here), the company had been facing intense pressure from Mr. Paulson, its largest shareholder, to make a move in order to unlock value.
Unfortunately for us here, the company didn’t take all of Mr. Paulson’s suggestions and opted to pursue sales of these other units as opposed to any spinoffs. He wasn’t all that happy with their plan either and his fund released a statement that it does “not believe today’s actions will materially increase P/C investor interest in the Hartford.” Selling off the units potentially provides flexibility for the company as the proceeds can be used to pay down debt (help with credit ratings) or fund annuities. P&C should take on a more important role though and likely attract more coverage, but it may still be weighed down by the other units.
The stock reacted positively to the news, at one point shooting up over 7%, but ultimately ended up closing up just a bit. Analysts seem to like this move as well, although S&P downgraded the life insurance and annuity businesses (assuming a stand alone basis). The stock is up nicely this calendar year which is definitely good news for Mr. Paulson, but according to this WSJ analysis, he is still likely sitting on some significant paper losses. While Mr. McGee may believe that a “spin doesn’t make sense for shareholders at the current time,” Mr. Paulson may still be applying pressure to extract what he believes to be maximum value for himself, I mean shareholders. We will keep you updated if this situation changes, but not much to do now.
Disclosure: Author holds no position in any stock mentioned.
- Paulson To HIG: Time To Announce Spin Is NOW (stockspinoffs.com)
- Paulson To Hartford Financial – Spin Or Else? (stockspinoffs.com)
- Shareholder Pressure Forces Hartford Break (beta.fool.com)