Wednesday, February 15, 2012
The Hartford: Paulson Advocates a Break Up
Remember last week when I commented on The Hartford’s earnings (which took a major blow specifically from the work comp line)? I conjectured that poor earnings and a promise from the CEO to “evaluate the business portfolio” portended change…
I learned earlier this week that John Paulson, billionaire hedge fund manager and largest individual shareholder in The Hartford, has advocated just that. On the February 8 investor conference call, Paulson suggested that CEO Liam McGree do “something drastic” to ensure the future success of the organization. His view was based, at least in part, on a report from Goldman Sachs suggesting that significant shareholder value might be created by splitting the life and P&C lines into two different entities
McGee claims to have analyzed such a scenario and while he acknowledged the potential benefits, he notes that “the split would not create the kind of shareholder value that the Goldman Sachs report suggests.” From my perspective, the challenges associated with such a split would include, but would not be limited to, the redundancy of back office administrative functions, the culture shock, and the loss of incentive for leveraging cross-sell opportunities.
But what did the stock do in early afternoon trading on February 8th (as news of Paulson’s view came to light)? Up 9.3%. Yikes.
Most importantly, I think this is the first of many “management vs. shareholder” fights that we’ll see in the health, life, and P&C insurance business over the next 3 to 5 years. In light of extreme uncertainty, the right strategy for maximizing shareholder value is, at best, unclear... and, at worst, unattainable.