UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 1)*
| The Hartford Financial Services Group, Inc. |
(Name of Issuer)
| Common Stock |
(Title of Class of Securities)
| 416515104 |
(CUSIP Number)
| Stuart L. Merzer General Counsel & Chief Compliance Officer Paulson & Co. Inc. 1251 Avenue of the Americas New York, New York 10020 (212) 956-2221 |
with a copy to:
Scott J. Davis
Mayer Brown LLP
71 S. Wacker Drive
Chicago, IL 60606
(312) 701-7311
(Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications)
| March 9, 2012 |
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box. ¨
Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See §240.13d-7 for other parties to whom copies are to be sent.
| * | The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. |
The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).
| CUSIP No. 416515104 |
| 1. |
Names of Reporting Persons.
Paulson & Co. Inc. | |||||
| 2. | Check the Appropriate Box if a Member of a Group (See Instructions) (a) ¨ (b) x
| |||||
| 3. | SEC Use Only:
| |||||
| 4. | Source of Funds (See Instructions):
AF | |||||
| 5. | Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e):
| |||||
| 6. | Citizenship or Place of Organization:
State of Delaware | |||||
| Number of Shares Beneficially by Owned by Each Reporting Person With |
7. | Sole Voting Power:
37,540,676 (See Notes 1 and 2 to Item 5 below) | ||||
| 8. | Shared Voting Power:
None | |||||
| 9. | Sole Dispositive Power:
37,540,676 (See Notes 1 and 2 to Item 5 below) | |||||
| 10. | Shared Dispositive Power:
None | |||||
| 11. |
Aggregate Amount Beneficially Owned by Each Reporting Person: 37,540,676 (See Notes 1 and 2 to Item 5 below)
| |||||
| 12. |
Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions): ¨
| |||||
| 13. |
Percent of Class Represented by Amount in Row (11): 8.5% (See Note 3 to Item 5 below)
| |||||
| 14. |
Type of Reporting Person (See Instructions):
IA | |||||
| Item 1. | Security and Issuer |
This Amendment No. 1 amends the Schedule 13D filed on February 14, 2012 by Paulson & Co. Inc. (the “Original Filing”), relating to the common stock (“Common Stock”) and warrants to purchase Common Stock expiring June 26, 2019 (“Warrants”) of The Hartford Financial Services Group, Inc., a Delaware corporation (the “Issuer”). Capitalized terms not defined herein shall have the meanings given to them in the Original Filing.
| Item 4. | Purpose of Transaction |
Item 4 of the Original Filing is hereby amended by adding the following:
As part of the Reporting Person’s continuing discussions or communications with the Issuer’s management, board of directors and shareholders, and public statements, relating to the Issuer’s possible spin-off of its property and casualty insurance business, the Reporting Person has used the presentation filed herewith.
| Item 5. | Interest in Securities of the Issuer |
Item 5 of the Original Filing is hereby amended and restated in its entirety as follow:
(a) Amount beneficially owned: 37,540,676 (See Notes 1 and 2)
Percent of class: 8.5% (See Note 3)
(b) Number of shares of Common Stock and number of Warrants as to which the Reporting Person has:
| (i) | Sole power to vote or direct the vote: 37,540,676 (See Notes 1 and 2) |
| (ii) | Share power to vote or direct the vote: 0 |
| (iii) | Sole power to dispose or direct disposition of: 37,540,676 (See Notes 1 and 2) |
| (iv) | Shared power to dispose or direct the disposition of: 0 |
(c) The following table sets forth all transactions with respect to the Common Stock of the Issuer effected since February 14, 2012, the date of the Original Filing, inclusive of any transactions effected through 5:00 p.m., New York City time, on March 8,2012. All such transactions were effected in the open market.
Purchase and sale transactions for the same quantities of shares on a given day typically reflect rebalancing of positions among the various Funds based on their relative capital levels, which may change from time to time.
| Date of Transaction |
Amount of Securities | Price Per Share | Type of Transaction | |||
| 3/6/12 | 156,247 | $19.4147 | Sell | |||
| 3/6/12 | 156,247 | $19.4300 | Buy |
| (d) | Not applicable. |
| (e) | Not applicable. |
Note 1: The amount listed consists of 37,470,676 shares of Common Stock and 70,000 Warrants. In addition, the Funds currently hold cash-settled swaps positions relating to an additional 221,424 shares of Common Stock and 3,251,000 Warrants, but because neither the Reporting Person nor the Funds have any power to vote, to direct the vote, to dispose or to direct the disposition of the shares of Common Stock and Warrants that its counterparty may hold in connection with such swaps positions, such shares of Common Stock and Warrants are not included in the amount listed in Item 5.
3 of 5
Note 2: The Reporting Person, an investment advisor that is registered under the Investment Advisers Act of 1940, furnishes investment advice to and manages the Funds. In its role as investment advisor, or manager, the Reporting Person possesses voting and/or investment power over the securities of the Issuer described in this schedule that are owned by the Funds. All securities reported in this schedule are owned by the Funds. The Reporting Person disclaims beneficial ownership of such securities.
Note 3: The percentages reported in this Amendment No. 1 are based upon 440,237,475 shares of Common Stock outstanding as of February 17, 2012 (as reported in the Annual Report on Form 10-K filed by the Issuer on February 24, 2012).
| Item 7. | Material to Be Filed as Exhibits |
The following document is filed as an exhibit:
EXHIBIT IV: Presentation dated March 9, 2012.
4 of 5
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
Dated: March 9, 2012
| PAULSON & CO. INC. | ||
| By: | /s/ Stuart L. Merzer | |
| Name: | Stuart L. Merzer | |
| Title: | General Counsel & Chief Compliance Officer | |
 INC.
& CO.
PAULSON
HARTFORD
Spin-Off of P&C Business Would
Increase Shareholder Value By 60%
Investment Management
1251 Avenue of the Americas
New York, NY 10020
Phone: (212) 956-2221 Fax: (212) 977-9505
www.paulsonco.com
March 9, 2012
CONFIDENTIAL |
 PAULSON
& CO.
INC.
1
LEGAL DISCLAIMER
This document does not constitute an offer to sell or a solicitation of an offer to
buy any securities, and may not be relied upon in connection with any offer or
sale of securities. This document should be read in conjunction with, and is qualified in its entirety by,
information appearing in the Confidential Private Offering Memorandum (and a Limited
Partnership Agreement for domestic partnerships), which should be carefully
reviewed prior to investing. Certain statements included herein may constitute forward-looking
statements, including, but not limited to, those identified by the expressions
“expect”, “intend”, “will” and similar expressions to the
extent they relate to the investment vehicles discussed herein. The
forward-looking statements are not historical facts but reflect Paulson
& Co’s current expectations regarding future results or events. These
forward-looking statements are subject to a number of risks and
uncertainties that could cause actual results or events to differ materially from
current expectations. Although Paulson & Co believes that the assumptions
inherent in the forward-looking statements are reasonable, forward-looking statements are not guarantees of future
performance and, accordingly, readers are cautioned not to place undue reliance on
such statements due to the inherent uncertainty therein. Paulson &
Co undertakes no obligation to update publicly or otherwise revise any forward-looking statement or information
whether as a result of new information, future events or other such factors which
affect this information, except as required by law.
An investment in a hedge fund is speculative and involves a high degree of risk,
which each investor must carefully consider. An investor in hedge funds could
lose all or a substantial amount of his or her investment. Returns generated from an investment in a hedge fund
may not adequately compensate investors for the business and financial risks assumed.
While hedge funds are subject to market risks common to other types of
investments, including market volatility, hedge funds employ certain trading techniques, such as the use of
leveraging and other speculative investment practices that may increase the risk of
investment loss. Products may involve above-average risk. Risks associated
with hedge fund investments include, but are not limited to, the fact that hedge funds can be highly illiquid; they are
not required to provide periodic pricing or valuation information to investors; they
may involve complex tax structures and delays in distributing important tax
information; they are not subject to the same regulatory requirements as mutual funds; they often charge
higher fees and the high fees may offset the funds’ trading profits; they may
have a limited operating history; they can have performance that is volatile;
they may have a fund manager who has total trading authority over the fund and the use of a single adviser applying
generally similar trading programs could mean a lack of diversification, and
consequentially, higher risk; they may not have a secondary market for an
investor’s interest in the fund and none may be expected to develop; they may have restrictions on transferring interests in
the fund; and may effect a substantial portion of their trades on foreign exchanges.
All material is compiled from sources believed to be reliable, but accuracy cannot be
guaranteed. This material may not be distributed to other than the intended recipients.
Unauthorized reproduction or distribution of all or any of this material is
strictly prohibited. |
 PAULSON
& CO.
INC.
2
HARTFORD P&C: THE CROWN JEWEL OF HARTFORD FINANCIAL SERVICES
200 year old P&C company
Dominant commercial P&C franchise
Serving high-margin small businesses
Largest consumer affinity business: AARP
Exclusive endorsement
40mm members
Strong management: CEO Doug Elliot
But buried within Hartford Financial Services
All material is compiled from sources believed to be reliable, but accuracy
cannot be guaranteed. The above represented are for illustrative purposes only. There is
no guarantee that these securities will be held in the funds in the future.
This material may not be distributed to other than the intended recipients. Unauthorized
reproduction or distribution of all or any of this material is strictly
prohibited. |
 PAULSON
& CO.
INC.
3
BECAUSE HARTFORD P&C IS BURIED WITHIN HIG, FEW P&C ANALYSTS COVER IT.
OF THE 19 P&C ANALYSTS, ONLY 3 COVER HARTFORD.
P&C
Covers:
Inst. Investor Ranking
Analyst
Bank
HIG
Life
1)
Jay Cohen
BAC
X
2)
Jay Gelb
Barclays
3)
Matt Heimermann
JPM
X
X
RU
Keith Walsh
Citi
X
X
RU
Josh Shanker
DB
X
X
RU
Brian Meredith
UBS
X
X
Vinay Misquith
Evercore
X
X
Michael Nannizzi
GS
X
X
Larry Greenberg
Janney Montgomery
X
X
Cliff Gallant
KBW
X
X
Alan Zimmermann
Macquarie
X
X
Greg Locraft
MS
X
X
Michael Grasher
Piper Jaffray
X
X
Mark Dwelle
RBC
X
X
Paul Newsome
Sandler O'Neil
X
X
Josh Stirling
Sanford Bernstein
X
X
Dan Farrell
Sterne Agee
X
X
Michael Paisan
Stifel
X
Adam Klauber
Wiilliam Blair
X
X
All material is compiled from sources believed to be reliable, but accuracy
cannot be guaranteed. The above represented are for illustrative purposes
only. There is no guarantee that these securities will be held in the funds in the future. This material may not be distributed to other
than the intended recipients. Unauthorized reproduction or distribution of all or
any of this material is strictly prohibited. |
 PAULSON
& CO.
INC.
4
P&C
Covers:
Inst. Investor Ranking
Analyst
Bank
Travelers
Chubb
ACE
Hartford
1)
Jay Cohen
BAC
2)
Jay Gelb
Barclays
3)
Matt Heimermann
JPM
RU
Keith Walsh
Citi
RU
Josh Shanker
DB
RU
Brian Meredith
UBS
Vinay Misquith
Evercore
Michael Nannizzi
GS
Larry Greenberg
Janney Montgomery
Cliff Gallant
KBW
Alan Zimmermann
Macquarie
Greg Locraft
MS
Michael Grasher
Piper Jaffray
Mark Dwelle
RBC
Paul Newsome
Sandler O'Neil
Josh Stirling
Sanford Bernstein
Dan Farrell
Sterne Agee
Michael Paisan
Stifel
Adam Klauber
Wiilliam Blair
WHILE ONLY 3 OF 19 P&C ANALYSTS COVER HARTFORD, 18 COVER TRAVELERS,
18 COVER CHUBB, AND 17 COVER ACE All
material is compiled from sources believed to be reliable, but accuracy cannot be guaranteed. The above represented are for illustrative purposes only.
There is no guarantee that these securities will be held in the funds in the
future. This material may not be distributed to other than the intended recipients.
Unauthorized reproduction or distribution of all or any of this material is
strictly prohibited. |
 PAULSON
& CO.
INC.
5
Buy ratings:
ACE
Travelers
Chubb
Hartford
15
13
8
1
P&C ANALYSTS ARE BULLISH ON THE P&C SECTOR. ACE HAS 15 BUY
RECOMMENDATIONS, TRAVELERS HAS 13, CHUBB HAS 8. HARTFORD HAS ONLY 1. All material is
compiled from sources believed to be reliable, but accuracy cannot be guaranteed. The above represented are for illustrative purposes only. There is no
guarantee that these securities will be held in the funds in the future. This
material may not be distributed to other than the intended recipients. Unauthorized
reproduction or distribution of all or any of this material is strictly
prohibited. |
 PAULSON
& CO.
INC.
6
HARTFORD IS VIEWED AS A LIFE COMPANY AND IS COVERED BY LIFE ANALYSTS. OF
THE 15 LIFE ANALYSTS WHO COVER HARTFORD , ONLY 3 ALSO COVER ITS P&C PEERS
..
Life
Covers:
Inst.
Investor
Ranking
Analyst
Bank
HIG
P&C
1)
Jimmy Bhullar
JPM
X
2)
Andrew Kligerman
UBS
X
3)
Tom Gallagher
CS
X
RU
Suneet Kamath
Sanford Bernstein
X
RU
Ed Spehar
BAC
X
RU
Nigel Dally
MS
X
Alan Devlin
Altantic Equities
Mark Finklestein
Evercore
X
Randy Binner
FBR
Chris Giovanni
GS
X
Bob Glasspiegal
Janney Montgomery
X
Jeff Schuman
KBW
X
Eric Berg
RBC
X
Ed Shields
Sandler O'Neil
X
X
John Nadel
Sterne Agee
X
John Hall
Wells Fargo
All material is compiled from sources believed to be reliable, but accuracy
cannot be guaranteed. The above represented are for illustrative purposes only.
There is no guarantee that these securities will be held in the funds in the
future. This material may not be distributed to other than the intended recipients.
Unauthorized reproduction or distribution of all or any of this material is
strictly prohibited. |
 7
HARTFORD TRADES AT A HUGE DISCOUNT TO P&C PEERS: 45% OF BOOK VALUE
COMPARED 102% FOR P&C PEERS
(1) As of March 7, 2012.
0.45x
0.91x
0.98x
1.02x
1.18x
0.00x
0.20x
0.40x
0.60x
0.80x
1.00x
1.20x
1.40x
PAULSON
& CO.
INC.
All material is compiled from sources believed to be reliable, but accuracy
cannot be guaranteed. The above represented are for illustrative purposes only.
There is no guarantee that these securities will be held in the funds in the
future. This material may not be distributed to other than the intended recipients.
Unauthorized reproduction or distribution of all or any of this material is
strictly prohibited. |
 PAULSON
& CO.
INC.
8
(1) Average of core earnings estimates by BAC, Barclays, JPM, UBS, CS &
MS. (2)
(3) Average P&C peer multiple for Hartford P&C. LNC multiple for
Hartford Life. (4)
2012 (1)
If-quoted value
4Q11
Core
If-quoted
Implied
BV ex AOCI
Earnings
ROE
P/BV (3)
P/E
Total
Per share
P&C
9,851
817
Net debt (2)
(2,200)
(94)
Corp. other (4)
508
8
Net
8,159
731
8.6%
1.02x
10.2x
8,322
16.20
Life
15,003
1,148
Net debt (2)
(3,000)
(214)
Corp. other (4)
1,036
8
Net
13,039
941
7.0%
0.60x
8.4x
7,864
15.31
P&C + Life
21,197
1,672
7.6%
0.76x
9.7x
16,186
31.51
Diluted shares
514
Share price as of
7-Mar-12
19.49
Upside
62%
P&C net debt consists of $2.5bn gross debt and $300mm cash, Life net debt
consists of $4.3bn gross debt and $1.3bn cash.
Assumes Corporate excluding debt and cash is allocated 50/50 between P&C and
Life. Assumes $528mm discount for Allianz jr. sub debt added back to
Life Corporate. A SPINOFF
OF P&C WOULD UNLOCK SIGNIFICANT VALUE. IF P&C AND LIFE WERE SEPARATED,
WE BELIEVE THE COMBINED VALUE WOULD BE APPROXIMATELY $31, A 62% INCREASE All
material is compiled from sources believed to be reliable, but accuracy cannot be guaranteed. The above represented are for illustrative purposes only. There is no guarantee
that these securities will be held in the funds in the future. This
material may not be distributed to other than the intended recipients. Unauthorized reproduction
or distribution of all or any of this material is strictly prohibited. |
 9
BASED ON VARIOUS P/BV MULTIPLES, THE TOTAL VALUE CREATED FROM A
SPINOFF COULD RANGE FROM 40-70%
Potential Values Based on Different P/BV Multiples
P&C P/BV
32
0.90x
1.00x
1.10x
1.20x
0.40x
25.20
26.59
27.99
29.43
0.50x
27.42
28.85
30.29
31.73
0.60x
29.71
31.15
32.59
34.02
0.70x
32.01
33.45
34.86
36.25
0.80x
34.30
35.69
37.09
38.49
Upside Based on 7-Mar-12 Share Price
P&C P/BV
0
0.90x
1.00x
1.10x
1.20x
0.40x
29%
36%
44%
51%
0.50x
41%
48%
55%
63%
0.60x
52%
60%
67%
75%
0.70x
64%
72%
79%
86%
0.80x
76%
83%
90%
97%
All material is compiled from sources believed to be reliable, but accuracy
cannot be guaranteed. The above represented are for illustrative purposes only.
There is no guarantee that these securities will be held in the funds in the
future. This material may not be distributed to other than the intended recipients.
Unauthorized reproduction or distribution of all or any of this material is
strictly prohibited.
PAULSON
& CO.
INC. |
 10
VALUE MAXIMIZATION
The most important single value creating option is to split P&C from
Life Additional value can be created by optimizing its balance sheet to pay
down debt, divesting high value businesses like mutual funds, and
cutting costs and freeing capital through a VA runoff.
By successfully pursuing these actions, Hartford can achieve a peer level
multiple P / BV:
0.43x
0.58x
0.60x
0.66x
0.71x
0.76x
$19
$26
$27
$30
$32
$34+
$15
$17
$19
$21
$23
$25
$27
$29
$31
$33
$35
Statuos quo
Spin off P&C
Optimize
balance sheet
Sell MF & Inst.
Annuity
VA in runoff
Separate
runoff from
other Life
All material is compiled from sources believed to be reliable, but accuracy
cannot be guaranteed. The above represented are for illustrative purposes only. There is
no guarantee that these securities will be held in the funds in the future.
This material may not be distributed to other than the intended recipients. Unauthorized
reproduction or distribution of all or any of this material is strictly
prohibited.
PAULSON
& CO.
INC. |
 PAULSON
& CO.
INC.
11
SPINOFF IMPLEMENTATION
Hartford could contribute P&C into a debt-free Newco
Newco
could
raise
new
low-cost
debt
($2.5bn,
5
-
10
year
maturities,
2.5% average coupon)
Debt proceeds could be used to repurchase existing debt
Remaining existing debt would stay with HIG (which would hold the
Life businesses after the spin-off of P&C)
Dividend Newco to HIG shareholders
All material is compiled from sources believed to be reliable, but accuracy
cannot be guaranteed. The above represented are for illustrative purposes only.
There is no guarantee that these securities will be held in the funds in the
future. This material may not be distributed to other than the intended recipients.
Unauthorized reproduction or distribution of all or any of this material is
strictly prohibited. |
 PAULSON
& CO.
INC.
12
MANAGEMENT RAISED CHALLENGES TO A SPIN-OFF IN THE 4Q11 EARNINGS
PRESENTATION
All material is compiled from sources believed to be reliable, but accuracy
cannot be guaranteed. The above represented are for illustrative purposes only. There
is no guarantee that these securities will be held in the funds in the future.
This material may not be distributed to other than the intended recipients.
Unauthorized reproduction or distribution of all or any of this material is
strictly prohibited. 1.
“Maintaining competitive ratings while allocating $6.8bn in holding company
debt”
“Life companies could assume no more than one-third of debt due to
combination of their currently limited capacity to generate statutory
earnings and dividends and “A” level interest coverage
ratios”
"P&C companies would need to assume at least two-thirds of debt, which
could require potentially dilutive de-leveraging actions in order
to meet “A” rating debt leverage ratios”
2.
“Regulatory approval could be conditioned on capital contributions or
keepwell agreements between the stand-alone companies”
3.
“ Other items:”
“Cost of securing bondholder approval of debt allocation” “Valuation impact of P&C company guarantee of certain life company
obligations”
“Potential write-off of a significant portion of the life companies'
deferred tax asset” |
 PAULSON
& CO.
INC.
13
CHALLENGE 1: “MAINTAINING
COMPETITIVE RATINGS WHILE ALLOCATING $6.8BN OF HOLDING COMPANY
DEBT” Numerous options exist to raise cash to reduce Holdco debt and
maintain ratings without “dilutive de-leveraging
actions” In addition, if necessary Hartford could consider
divestitures of: VA runoff: expense cuts and capital return bolster strength
to service debt Hartford Life should maintain an A-rating.
Hartford P&C likely to be upgraded to A1
($ in billions)
Low
High
Cash at 4Q11
$1.6
$1.6
Retained earnings
0.3
0.7
XXX transaction
0.2
0.4
Hedge fund repackaging
1.1
1.1
Divestiture of FA runoff
0.8
1.0
Total
$4.0
$4.8
($ in billions)
Low
High
Est. P /BV
P /E
Mutual funds
$1.5
$1.5
5.40x
15.6x
Retirement
0.5
0.7
0.53x
12.5x
Group benefits
1.5
2.0
1.47x
12.5x
Total
$3.5
$4.2
1.56x
13.7x
Grand total
$7.5
$9.0
All material is compiled from sources believed to be reliable, but accuracy
cannot be guaranteed. The above represented are for illustrative purposes only.
There is no guarantee that these securities will be held in the funds in the
future. This material may not be distributed to other than the intended recipients.
Unauthorized reproduction or distribution of all or any of this material is
strictly prohibited. |
 PAULSON
& CO.
INC.
14
CHALLENGE 1: “MAINTAINING
COMPETITIVE RATINGS WHILE ALLOCATING $6.8BN OF HOLDING COMPANY
DEBT” Hartford Financial Services Group
P&C
Hartford Life & Accident
Group
somewhat credit ratings-sensistive
Retirement
Harford Life & Annuity
Runoff VA (US & Japan)
Individual Life (in runoff)
not credit ratings-sensitive
Mutual Funds
However, even if Hartford Life were downgraded to BBB, credit sensitive
businesses could be protected within P&C or through a divestiture to
a strong buyer Conceptually, HIG could be divided into three businesses: P&C, Hartford
Life & Accident, and Hartford Life & Annuity. This would
produce the most value, even more than our previous indication
Once the US VA business is put in run-off, an A-rating is not a constraint
All
material is compiled from sources believed to be reliable, but accuracy cannot be guaranteed. The above represented are for illustrative purposes only.
There is no guarantee that these securities will be held in the funds in the
future. This material may not be distributed to other than the intended recipients.
Unauthorized reproduction or distribution of all or any of this material is
strictly prohibited. |
 PAULSON
& CO.
INC.
15
CHALLENGE 2: “REGULATORY APPROVAL COULD BE CONDITIONED ON
CAPITAL CONTRIBUTIONS OR KEEPWELL AGREEMENTS BETWEEN THE
STAND-ALONE COMPANIES”
“I am aware of the shareholder filing
regarding Hartford Financial Services. However, until the
Department receives formal notice from the Company with respect to future
plans we are not in a position to comment further. Certainly, in any
such regulatory approval process that involves a Connecticut-based
carrier, policyholder protection is paramount.”
-Thomas Leonardi – CT Insurance Commissioner, 15 Feb 2012
Hartford has access to numerous sources of
cash over the next 18 months to ensure that both P&C
and Life policyholders will be protected and all regulatory conditions will
be met All material is compiled from sources believed to be reliable, but accuracy
cannot be guaranteed. The above represented are for illustrative purposes only.
There is no guarantee that these securities will be held in the funds in the
future. This material may not be distributed to other than the intended recipients. Unauthorized
reproduction or distribution of all or any of this material is strictly prohibited. |
 PAULSON
& CO.
INC.
16
CHALLENGE 3: OTHER
“Cost of securing bondholder approval of debt allocation”
No bondholder approval needed to spinoff P&C business
“We will not consolidate with or merge into any other corporation
or convey, transfer or lease our properties and assets substantially as an
entirety to any person...unless: the successor corporation expressly
assumes our obligations relating to the notes”
Many alternatives exist for restructuring and repurchasing debt
“Valuation impact of P&C company guarantee of certain Life
obligations” Minimal impact. P&C guarantee only applies to business
written between
1990
and
1997
–
small
amount
of
VA
policies
that
are
well
in the money, none from Japan
“Potential write-off of a significant portion of the life companies'
DTA” A non-cash, GAAP-only item that does not affect regulatory
capital or the ability to use $2bn of capital loss-carryforwards to
shelter tax on gains on divestitures
All material is compiled from sources believed to be reliable, but accuracy
cannot be guaranteed. The above represented are for illustrative purposes only. There
is no guarantee that these securities will be held in the funds in the future.
This material may not be distributed to other than the intended recipients.
Unauthorized reproduction or distribution of all or any of this material is
strictly prohibited. |
 17
PAULSON
& CO.
INC.
WHILE MULTI-LINE INSURANCE COMPANIES WERE POPULAR IN THE PAST,
NEARLY ALL LEADING U.S. INSURERS ARE NOW PURE-PLAYS
Segment earnings
Historical
2011
Date
P&C
Life
Health
P&C
Life
Health
Travelers (1)
2000
75%
25%
0%
100%
0%
0%
CNA
2002
59%
41%
0%
100%
0%
0%
Lincoln (2)
1996
40%
60%
0%
0%
100%
0%
Aetna
1994
8%
42%
50%
0%
8%
92%
Cigna
1996
20%
34%
46%
0%
18%
82%
(1)
Pro-forma combination of St. Paul and Citigroup insurance businesses
(2)
P&C includes reinsurance segment
All material is compiled from sources believed to be reliable, but accuracy
cannot be guaranteed. The above represented are for illustrative purposes only. There
is no guarantee that these securities will be held in the funds in the future.
This material may not be distributed to other than the intended recipients.
Unauthorized reproduction or distribution of all or any of this material is
strictly prohibited. |
 PAULSON
& CO.
INC.
18
All material is compiled from sources believed to be reliable, but accuracy
cannot be guaranteed. The above represented are for illustrative purposes only. There
is no guarantee that these securities will be held in the funds in the future.
This material may not be distributed to other than the intended recipients.
Unauthorized reproduction or distribution of all or any of this material is
strictly prohibited. Spinco
Completion
Parent
Spinco
Market cap
Date
Marathon Oil
Marathon Petroleum
14,892
Jun-11
Motorola
Motorola Mobility
11,996
Dec-10
Liberty Media
Liberty Interactive
10,786
Sep-11
Expedia
TripAdvisor
4,205
Dec-11
Williams Cos
WPX Energy
3,631
Jan-12
Cablevision
AMC Networks
3,192
Jun-11
Beam
Fortune Brands
3,134
Oct-11
General Growth
Howard Hughes
2,303
Nov-11
Northrup Grumman
Huntington Ingalls
1,775
Mar-11
Sunoco
SunCoke Energy
971
Jan-12
Marriott International
Marriott Vacations
894
Nov-11
Forest Oil
Lone Pine Resources
615
Sep-11
MANY FORTUNE 500 COMPANIES ARE SPINNING OFF 100% OF BUSINESS LINES
TO CREATE SHAREHOLDER VALUE: COMPLETED |
 PAULSON
& CO.
INC.
19
All material is compiled from sources believed to be reliable, but accuracy
cannot be guaranteed. The above represented are for illustrative purposes only. There
is no guarantee that these securities will be held in the funds in the future.
This material may not be distributed to other than the intended recipients.
Unauthorized reproduction or distribution of all or any of this material is
strictly prohibited. MANY FORTUNE 500 COMPANIES ARE SPINNING OFF 100% OF
BUSINESS LINES TO CREATE SHAREHOLDER VALUE: ANNOUNCED
Announcement
Parent
Spinco
Date
Abbott Laboratories
Research-based medicines
Oct-11
Tyco
ADT Home Security & Flow Control
Sep-11
Kraft
North American grocery business
Aug-11
L-3
Government Services
Jul-11
Ralcorp
Post Foods
Jul-11
ConocoPhillips
Refining & marketing business
Jul-11
Sears
Orchard Supply Hardware
Jun-11
Procter & Gamble
Pringles
Apr-11
Sara Lee
Beverage business
Jan-11 |
 PAULSON
& CO.
INC.
20
THE OBJECTIVE IN ALL THESE SPIN-OFFS IS THE SAME, TO OPTIMIZE RETURNS TO
SHAREHOLDERS
Ralcorp’s
100%
Tax-Free
Spinoff
of
Post
Foods
We firmly believe the separation of Post Foods from Ralcorp by way of a
tax-free spin-off will unlock significant value for our
shareholders. As independent companies, both Ralcorp and Post Foods will
be better positioned to focus on strategies
specific
to
their
particular
businesses,
thereby
improving
the
opportunities
to
deliver
increasing shareholder value.
William Stiritz -
Chairman of Ralcorp, 15 Jul 2011
Kraft’s
100%
Tax-Free
Spinoff
of
N.
American
Grocery
Business
The
company
believes
creating
two
public
companies
would
offer
a
number
of
opportunities:
–
Each business would focus on its distinct strategic priorities, with financial
targets that best fit its own markets and unique opportunities.
–
Each
would
be
able
to
allocate
resources
and
deploy
capital
in
a
manner
consistent
with
its
strategic priorities in order to optimize total returns to shareholders.
–
Investors would be able to value the two companies based on their particular
operational and financial characteristics and thus invest
accordingly. Press release, 4 Aug 2011
All material is compiled from sources believed to be reliable, but accuracy
cannot be guaranteed. The above represented are for illustrative purposes only. There
is no guarantee that these securities will be held in the funds in the future.
This material may not be distributed to other than the intended recipients.
Unauthorized reproduction or distribution of all or any of this material is
strictly prohibited. |
 21
PAULSON
& CO.
INC.
HOW LONG MIGHT WE HAVE TO WAIT FOR MANAGEMENT’S PLAN TO BE
ANNOUNCED? AND COMPLETED?
All material is compiled from sources believed to be reliable, but accuracy
cannot be guaranteed. The above represented are for illustrative purposes only. There
is no guarantee that these securities will be held in the funds in the future.
This material may not be distributed to other than the intended recipients.
Unauthorized reproduction or distribution of all or any of this material is
strictly prohibited. |
 PAULSON
& CO.
INC.
22
(1) Life Peers: LNC, PFG, MET & PRU
(2) P&C Peers: TRV, CB & ACE
HARTFORD’S STOCK HAS DRAMATICALLY UNDERPERFORMED P&C PEERS BY 59% AND LIFE
PEERS
BY
24%
SINCE
RAISING
NEW
EQUITY
CAPITAL
TO
MEET
ITS
STRESS
TESTS
Performance is unacceptable. No time to delay restructuring actions
Since:
Mar
16
(60%)
(50%)
(40%)
(30%)
(20%)
(10%)
0%
10%
20%
30%
40%
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
(25)%
34%
(1)%
P&C
Life
HIG
Last
Datapoint:
7 Mar 12
$2.15bn equity &
convertible offering
announced: 16 Mar 10
at $27.75
All material is compiled from sources believed to be reliable, but accuracy
cannot be guaranteed. The above represented are for illustrative purposes only. There is
no guarantee that these securities will be held in the funds in the future.
This material may not be distributed to other than the intended recipients. Unauthorized
reproduction or distribution of all or any of this material is strictly
prohibited. |
 PAULSON
& CO.
INC.
23
ANALYSTS VIEW A P&C SPINOFF AS VALUE ACCRETIVE
All material is compiled from sources believed to be reliable, but accuracy
cannot be guaranteed. The above represented are for illustrative purposes only.
There is no guarantee that these securities will be held in the funds in the
future. This material may not be distributed to other than the intended recipients.
Unauthorized reproduction or distribution of all or any of this material is
strictly prohibited.
“We believe there is a strong opportunity for management to unlock
shareholder value by reevaluating the
multi-line strategy, placing annuities into run-off, and selling off its
remaining life insurance operations. If executed, we see a potential fair value in the range of
$26-27, roughly 50% above the stock’s level.”
-Nigel Dally-Morgan Stanley, 1 Feb 2012
“We believe HIG’s P&C and life companies are worth more
separately than together. If HIG’s valuation remains depressed,
we expect HIG to reach a similar verdict over time, resulting in a
potential spin-off of its P&C business.” [price target $28.32, 73% above the market price]
-
Chris Giovanni-Goldman Sachs, 9 Jan 2012
“We believe there remains 70% upside to Hartford’s valuation on
a sum of the parts ($34.24), and if the company is
willing to split the businesses or consider strategic alternatives,
this value could be unlocked.”
“In our view, the P&C operations alone are worth the current market cap
($8.4bn, $19/share)...the Life franchises are worth an additional
$6.7bn or $15/share...based on its peers multiples. In a bidding
process each individual unit could achieve a premium to the peer valuation.”
-Alan Devlin-Atlantic Equities, 15 Feb 2012
|
 PAULSON
& CO.
INC.
24
RECOMMENDED PLAN
All material is compiled from sources believed to be reliable, but accuracy
cannot be guaranteed. The above represented are for illustrative purposes only.
There is no guarantee that these securities will be held in the funds in the
future. This material may not be distributed to other than the intended recipients.
Unauthorized reproduction or distribution of all or any of this material is
strictly prohibited. April [ ], 2012 Announcement
Hartford plans to spin off 100% of Hartford P&C, subject to
final Board and regulatory approval
Estimated closing date: 2Q13
US VA will be put in run-off, effective immediately
Substantial cost savings and accelerated return of capital
Hartford Life will review the strategy and structure of its life
businesses over the next twelve months |