John Paulson, whose hedge fund Paulson & Co. owns 8.5% of the company, has been pushing for Hartford Financial Services Group (HIG) to spinoff its property and casualty (P&C) insurance business after the company lost over 40% last year.
In late March, the Hartford announced that it would stop selling variable annuities in order to allow it to focus more on its property and casualty insurance, employee benefits and mutual funds. “We began a process in the middle of last year…looking at our portfolio of businesses and our business strategy. We’ve said we would be objective and pragmatic about what steps we would take to realize that goal,” said Hartford CEO Liam McGee in a recent interview. “In the process of that evaluation, Paulson & Co. did make a suggestion of a split. We’ve been very open and transparent publicly about our open-mindedness and our objectivity and our rigorousness of looking at that. We just didn’t believe it was going to create shareholder value.”
Now, McGee “plans to issue senior notes and junior subordinated debt as part of a strategy to improve financial flexibility,” reports Bloomberg. Hartford “will pay about $2.43 billion to buy back debt and warrants issued to Allianz SE. (ALV).”
“The U.S. company turned to Allianz, Germany’s largest insurer, for capital in 2008, agreeing to pay 10 percent on $1.75 billion of debt as capital markets froze.” Bloomberg continues”The purchase of $300 million in warrants will be funded through an existing $500 million share buyback program, Hartford said. Allianz will have about 5 percent of Hartford’s common stock after the deals, which Hartford said it expects to be completed about April 17.”
The transactions are expected to reduce Hartford’s expected interest expense by replacing its higher interest coupon debt with lower interest debt. “The warrants gave Allianz the option to buy 69.3 million shares for $25.23 each, Hartford said in its annual 10-K filing. The warrants were issued in October 2008 with a term of seven years.”