Hartford Financial Shares Rally On $2.5 Billion Investment From Allianz

Mon. October 06, 2008; Posted: 10:50 AM

The stock climbed nearly 18%, advancing $4.85 to $32.25 per share by 10:20 am Eastern Time, with shares of the Hartford, Connecticut-based company adding to Friday's gain.

Before the opening bell on Monday, Hartford announced a binding agreement with Allianz that provides for a $2.5 billion capital investment.

At a price of $31 per share, Allianz will purchase $750 million or Hartford's preferred shares that are convertible to common stock after the receipt of applicable approvals. Allianz will also acquire $1.75 billion of 10% junior subordinated debentures, which are callable by Hartford at par beginning ten years after issuance.

Allianz will also receive warrants that entitle it to purchase $1.75 billion of common stock at an exercise price of $25.32 per share, subject to shareholder approvals. The warrants expire in seven years.

"The current transaction will ultimately issue 93 million shares to Allianz, giving it a 20-to-25% stake in the common equity," said Citigroup analysts in a Monday research report. "Given the size of Hartford's in-force book combined with the slow-down in its recent business production, we have viewed it as ripe for acquisition and this transaction increases the likelihood that Allianz may ultimately buy,"

Hartford expects a net loss for the third quarter in the range of $8.50 to $8.80 per share, including net realized capital losses in the range of $7.05 to $7.25 per share, or approximately $2.1 billion to $2.2 billion.

For the third quarter, the company expects to report core earnings per share in the range of $1.50 to $1.60 before the effect of a deferred acquisition costs unlock. On average, analysts polled by First Call/Thomson Financial expect earnings of $0.71 per share.

In conjunction with Allianz's financial investment and the increase in shares outstanding, Hartford has reduced its quarterly dividend to $0.32 per share.

Also on Monday, Hartford announced that it appointed Greg McGreevey as executive vice president and chief investment officer for the company and president of Hartford Investment Management Co. He succeeds Dave Znamierowski who is leaving the company.

McGreevey, who joined Hartford as chief investment officer for insurance portfolios, previously served at ING Investment Management, where he was vice chairman and executive vice president of ING Investment Management - Americas.

In mid-September, Hartford disclosed its investment holdings in Lehman Brothers and American International Group (AIG | Quote | Chart | News | PowerRating) in response to recent market events. As of June 30, the company's general account assets were $94.6 billion.

The company said it had $91 million of senior debt, $127 million of subordinated debt and $34 million of preferred stock in Lehman. The company had about $50 million of unsecured counterparty exposure to Lehman in connection with derivatives transactions as of September 16.

In AIG, the company said it had $8 million of senior debt, and $7 million of subordinated debt. The company also has a $35 million private placement investment in an AIG affiliate in which the company has a priority claim on a diversified pool of assets.

The company also said that it was exposed to senior debt issued by Lehman and AIG through credit default swaps. The company said its aggregate exposure to Lehman and AIG pursuant to these swaps was about $30 million and $70 million, respectively.

For full details on Hartford Financial Services Group (HIG) click here. Hartford Financial Services Group (HIG) has Short Term PowerRatings of 2. Details on Hartford Financial Services Group (HIG) Short Term PowerRatings is available at This Link.

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