CORRECT: Hartford Agrees To Buy $2.43 Billion In Securities From Allianz
03 April 2012 - 3:04AM
Dow Jones News
NEW YORK (Dow Jones)--Hartford Financial Services Group Inc.
(HIG) agreed to pay $2.43 billion to buy back securities it sold to
Allianz SE (ALV.XE, ALIZF, AZSEY) in the depths of the financial
crisis.
The agreement allows Hartford to replace $1.75 billion of debt
it owes to Allianz, which was paying the German insurer 10% a year,
with new debt at a lower cost. John Nadel, an analyst at Sterne
Agee, estimated Monday that Hartford could save between $50 million
and $75 million in interest expenses annually.
Hartford will also pay Allianz $300 million to buy back warrants
that entitled the German insurer to purchase 69.4 million shares of
Hartford's stock for $25.32 each. Hartford's stock rose 1.5% to
$21.39 in morning trading.
The agreement leaves Allianz with about 5% of Hartford's
outstanding shares, but otherwise closes the book on an October
2008 investment that helped shore up Hartford's balance sheet when
capital markets were frozen and investors were beginning to
question the company's ability to survive the financial crisis.
Hartford later needed a $3.4 billion bailout from the U.S.
government, which it repaid in 2010.
An Allianz spokesman said Allianz's average return on the
Hartford investment had been 15% annually. The agreement announced
Monday frees up about EUR1.5 billion ($2 billion) in capital that
Allianz, Europe's largest insurer by premium income and market
capitalization, had to set aside for the investment, which could be
used for other things.
The transaction should also ease market speculation that Allianz
could be interested in buying Hartford outright. Such rumors
regularly resurfaced even though Allianz executives had repeatedly
said they considered the Hartford stake to be a financial
investment, rather than a strategic one.
The deal with Allianz comes as Hartford Chief Executive Liam
McGee embarks on an effort to shed low-return businesses and boost
the company's share price. Hartford announced plans last month to
exit the variable annuity business and put its life-insurance arm
up for sale to focus on its property-and-casualty insurance
business.
Hartford agreed to pay about $2.1 billion plus interest to
retire the junior subordinated debt held by Allianz. After the
announcement of the deal on Monday, Hartford issued prospectuses
for new senior and junior notes to raise money to buy back
Allianz's investment.
The repurchase requires the approval of investors who hold
another series of notes issued by Hartford that pay 6.1%.
The repurchase of the warrants will be counted as part of
Hartford's existing $500 million equity repurchase program. The
deal leaves Hartford with a remaining buyback authorization of
about $106 million, which the company "intends to complete on a
timely basis," according to a statement Monday.
The repurchase of both the warrants and the debt are scheduled
for April 17, though Hartford has the option to delay the
repurchase of the debt if needed.
-By Erik Holm, Dow Jones Newswires; 212-416-2892;
erik.holm@dowjones.com
--Kristin Jones contributed to this article.