John Paulson just sent a behemoth of a 13D letter to insurance company The Hartford, encouraging the firm to pursue a spin-off of its property and casualty business.
Many may remember Paulson’s yelling tirade last week on a Hartford earnings conference call when he berated Hartford CEO Liam McGee for why the company had not revealed any specific, productive solutions to increasing shareholder value. The company’s stock current trades at one of the lowest valuations relative to book value of any major insurance provider, Paulson pointed out.
McGee had told Paulson that Hartford management did not believe splitting the company would create shareholder value in the current environment.
During the earnings call, Paulson expressed disappointment that Hartford only said there were “challenges” in exploring strategic alternatives but did not specify any of the exact problems. In his 13D letter today, Paulson does the job for Hartford—he states that it seems Hartford may be worried about increasing debt in a spin-off, and then proceeds to list 11 ways that the company can address balancing its leverage as it pursues a such a course of action. Oof.
Similar to last week, investors are loving the Paulson action on Hartford—the stock is up over 6% in after-hours trading.
This letter could really be the beginning of a long battle. Although Paulson lacks the poison pen of many other known activist hedge funders, he has many options available to pursue the spin-off that he wants. A 13D is just a push in the direction he wants, if Paulson initiates a proxy fight—then things would get interesting. Also bear in mind that Paulson’s hedge fund owns a majority stake in Hartford—about 8.4%.
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