John Paulson vs Hartford Financial

FT Alphaville

You’ll have to imagine how it sounded. But here’s an interesting demonstration of John Paulson at work… stepping onto Hartford Financial’s earnings conference call to lambast the insurer’s performance. Shares in Hartford dropped 39 per cent last year. Paulson’s the biggest holder.

Paulson was decidedly not happy with a presentation from Hartford Financial on Wednesday, which he said failed to adequately examine the benefits of spinning off its Life and Property & Casualty units. So he tore into chairman/president/chief executive Liam McGee — from the conference call transcript:

Operator: Your next question comes from the line of Lawrence Farley with Paulson & Company.

John Alfred Paulson: Good morning. This is John Paulson speaking.

Liam E. McGee:
Hello, John.

John Alfred Paulson:
Liam, I want to go back to the slide 17 talking about the potential separating the Life and P&C business. And the – I know you’re doing a strategic review but there’s no slide talking what about what the potential would be, just that there’s challenges. Goldman Sachs came out with, I think, a very good analysis a few months ago where they showed this – they estimate the upside to doing a tax free spin-off of P&C could be over 70% of what the current stock price is trading at. Now, I agree that there’s going be challenges but isn’t your job to really overcome those challenges to achieve the maximum value for shareholders? Now, I would say that Hartford needs to do something drastic because the stock is the lowest valuation relative to book value of any major insurance company. Last year Hartford stock was down 38% while the P&C stocks were up 14% and even declined much more than the Life index which was down 21%. So what I’d like to see you do isnot merely come back and say yes, we’re looking at strategic options but there’s challenges to achieving them but what – first of all, do you agree that you could create as much as 70% value for yourshareholders by spinning off – separating P&C? And secondly, is http://gap (52:10) incentive to overcome the challenges that it’s going to take to spin this off and how long do we have to wait to hear if there’s going be a positive recommendation to separate these two businesses?

Liam E. McGee: Thanks John for the question. First of all, the analysis and the intent of the comments was to acknowledge that the challenges are significant, not to say that they could not beovercome. Second of all, our analysis, including the frictional costs, if you will, that are in that third category would suggest that a split would not create the kind of shareholder value that that particularreport suggested. And third, in addition I think your sense of urgency about realizing greater value for shareholders is shared by me and by this team. And so I hope I answered your questions distinctly and directly…

John Alfred Paulson: Partially, Liam, but if you share the interest all shareholders have in increasing shareholder value I’m surprised that as part of the discussion you don’t talk about how much value could be created by separating the P&C business from the Life business. And not the only slide you devote to it talking about that there’s some obstacles to overcome and not talking about the upside in weighing the upside of the separation against what the obstacles are.

Liam E. McGee: John…

John Alfred Paulson: And better yet, not just listing those obstacles but what I’d like to see is how you will overcome those obstacles to result in a more fair valuation for Hartford. Not that there’sobstacles but how you’re going to overcome those obstacles. That’s what I as a shareholder look for you as the management to do.

Liam E. McGee: Thank you, John. And I – that is our mindset. Our purpose in the slide was to identify the hurdles. You can – if you heard our language we did not say they were not surmountable, number one. We said there were significant costs to surmount them in a number of areas, so we felt we owed shareholders that disclosure. Number two, we do not believe that splitting them in the current environment for the reasons that we cited will create shareholder value. And third, again I’ll reiterate, we have an incredible sense of urgency on looking at all ideas to create shareholder value.

John Alfred Paulson: Well, I think you need to do a much better job of explaining that because Goldman’s report is a very good report on a path to separate the business and create what theyestimate as a 70% increase in shareholder value. And then you merely say there’s some obstacles and you don’t equate what the costs are to the benefit and what value do you think could be created. Because right now with the stock performing as poorly as it has relative to both P&C and life companies, I think you need a better explanation of what you’re going to do to enhance shareholder value. Merely that you’re working hard and you’re committed but there’s obstacles. What we need you to do is overcome the obstacles to enhance the valuation for your shareholders. Not merely point out that there’s obstacles.

Liam E. McGee: Okay, John. Thank you. I hear you loud and clear.

John Alfred Paulson: I hope so.

Operator: Your next question comes from the line of Andrew Kligerman with UBS.

Andrew S. Kligerman: Okay. Great timing to have the next question.

Liam E. McGee: Hi, Andrew. Welcome.

Welcome, indeed.


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