The Hartford Financial Services Group plans to repay most of a rescue it received during the financial crisis, buying back debentures and warrants from Germany’s Allianz SE for $2.43 billion.
The Hartford’s shares rose 3.7 percent in afternoon trading, far outperforming the sector, as one analyst said the deal could save the company hundreds of millions of dollars.
In early October 2008, during the deepest point of the crisis, Allianz pumped $2.5 billion into The Hartford via preferred shares, debentures and warrants. After the repurchases announced Monday, Allianz will still own about 5 percent of the company, worth $464 million as of Friday’s close.
In a statement, the insurer said the buyback — to be partly financed by issuing new debt and partly by its stock buyback program — would give it “additional financial flexibility and an improved capital structure.”
Sterne Agee analyst John Nadel said the company was saving about $700 million with the deal compared with what it may have had to pay Allianz contractually, plus up to $75 million a year in pretax interest expense. Nadel said the deal will not raise Hartford’s earnings or book value per share.
Last month, amid heavy pressure from its largest shareholder, hedge fund manager John Paulson, The Hartford said it would sell off most of its life insurance-related operations and shut down its annuity business.
Paulson has called that plan a good first step, though he continues to insist the company would be better off splitting its property insurance business from the rest of its operations, including a mutual fund unit.
The Hartford was one of three insurers to receive a U.S. government rescue during the financial crisis, and in recent times its valuation has severely lagged peers.
Its shares rose 76 cents to $21.84 in afternoon trade. The stock is up 0.6 percent since the company revealed the breakup plan, mirroring th e broader sector.
The buyback will also remove an overhang from The Hartford; every few months, rumors have surfaced in European markets that Allianz may buy the company. Both sides have always categorically denied such rumors.
Allianz separately said the deal with The Hartford would reduce the German company’s risky capital by 1.5 billion euros.