CHARLOTTE, N.C.
Hartford Financial Services Group Inc. said Monday that it will receive a $2.5 billion investment from Allianz SE, a move that may foreshadow acquisition.
The Hartford, Conn.-based insurer also predicted a steep third-quarter loss and said it is cutting its dividend in conjunction with the investment by Allianz.
The news sent Hartford Financial shares up 3.50, or 12.8 percent, to $30.90. The company lost nearly $9 billion of market value last week as investors cut share price by more than half. Its stock is down 65 percent for the year.
Hartford said Allianz will purchase $750 million in preferred stock at $31 per share that is convertible to common stock. The German financial-services firm will also purchase $1.75 billion of 10 percent junior subordinated debentures.
The investment increases the chance that Allianz may acquire all of Hartford Financial, a Citi Investment Research analyst said in a research report.
“Given the size of Hartford’s in-force book, combined with the slowdown in its recent business production, we have viewed it as ripe for acquisition, and this transaction increases the likelihood that Allianz may ultimately buy,” analyst Joshua Shanker wrote.
Hartford Financial also provided Allianz with warrants to purchase an additional $1.75 billion in common stock at a price of $25.32 per share. The warrants expire in seven years.
“This investment strengthens our ability to weather volatile markets and continue to invest and vigorously compete in our businesses,” said Ramani Ayer, Hartford Financial’s chairman and chief executive officer.
The investment comes as Hartford Financial expects to record a third-quarter loss of $8.50 to $8.80 per share, mostlybecause of losses in its investment portfolio.
The insurance and financial service firm expects to take realized capital losses ranging from $7.05 to $7.25 per share, or about $2.1 billion to $2.2 billion. About three-quarters of that charge is tied to investments in the financial services sector, which has been hit hard by the ongoing credit crisis.
“It’s a big bet, but when the storm passes, Allianz will be firmly positioned to take advantage of one of the world’s largest insurance markets,” said Catherine Stagg-Macey, a senior insurance analyst with Celent, a Boston-based financial research and consulting firm.
Hartford Financial’s shares have tumbled in recent days on concerns about its exposure to collapsed companies, including Washington Mutual Inc., investment bank Lehman Brothers Holdings Inc. and rival insurer American International Group Inc.
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