The Hartford’s Biggest Stakeholder Wants to Split Up the Firm
February 14, 2012 by Young Ha
The Hartford Financial Services Group’s biggest stakeholder is not happy with its stock price and wants The Hartford CEO Liam McGee to do “something drastic,” including splitting up the company’s life insurance and P/C businesses.
Speaking at the company’s earnings call last week, John Paulson, the billionaire hedge fund manager who controls the largest stake in The Hartford, told CEO McGee he needs to reverse the insurer’s continuing stock slide.
Paulson cited a recent report from Goldman Sachs that estimated that the upside to doing a spinoff of P/C businesses can be over 70 percent of what the current stock price is trading at. “Hartford needs to do something drastic because the stock is the lowest valuation relative to book value of any major insurance company,” Paulson said. “How long do we have to wait to hear if there is going to be a positive recommendation to separate these two businesses?”
CEO McGee said Paulson’s sense of urgency for realizing greater value for shareholders is “shared by me and by this team.” However, McGee added, the company had already hired advisors to evaluate splitting the life insurance and P/C businesses and found that the breakup would pose significant challenges for the insurer.
“Our analysis suggests that a split would not create the kind of shareholder value that the Goldman Sachs report suggested,” CEO McGee said. “There are significant challenges to making a split possible. We’re not unaware of some of the potential benefits if it was possible in terms of greater focus.” However, he added, “in our view, the challenges are significant at the present time.”