The Hartford has entered into a definitive agreement to sell Talcott Resolution, its run-off life and annuity businesses, to a group of investors led by Cornell Capital LLC, Atlas Merchant Capital LLC, TRB Advisors LP, Global Atlantic Financial Group, Pine Brook and J. Safra Group.
Total consideration to The Hartford is USD$2.05bn, comprised of cash from the investor group, a pre-closing cash dividend, debt included as part of the sale, and a 9.7 percent ownership interest in the acquiring company.
The total consideration amount does not include USD$1.4bn in dividends previously paid by Talcott Resolution in 2017. Subject to regulatory approval and other closing conditions, the sale is expected to close in the first half of 2018.
Under the terms of the sale agreement and subject to regulatory approval, the investor group will create a new company that will purchase Hartford Life, Inc. (HLI), the holding company for the Talcott Resolution operating subsidiaries, for a net cash payment of USD$1.443bn.
The Hartford will receive a 9.7 percent ownership interest, valued at USD$164mn, in the new company.
Subject to regulatory approval, The Hartford also expects to receive USD$300mn in a pre-closing dividend from Talcott Resolution and will reduce its long-term debt by $143mn as debt issued by HLI will be included as part of the sale.
Additionally, The Hartford will keep hold of Talcott Resolution tax benefits with an estimated GAAP book value of USD$950mn, which will be available for realization subject to the level and timing of The Hartford’s taxable income.
As a result of The Hartford’s election to retain certain tax benefits, the company will not recognize a tax capital loss on the sale. Based on the terms of the sale and the retention of the tax attributes, The Hartford estimates that the sale will result in a GAAP net loss of approximately USD$3.2bn, after tax, which would be recorded in discontinued operations in fourth quarter 2017.
The estimated loss on sale and the estimated retained tax benefits and our ability to realize such benefits are based on current tax law and are subject to a final determination of the tax basis of the operations sold. Beginning in fourth quarter 2017 and continuing until closing of the transaction, the results of operations of Talcott Resolution will be reported as discontinued operations for all periods presented in The Hartford’s financial statements.
Before the closing of the transaction, the company’s Group Benefits and Mutual Funds subsidiaries, which are currently subsidiaries of HLI, will be transferred to another Hartford subsidiary and will not be part of the transaction.
As well as this, immediately after closing, Talcott Resolution will reinsure a portion of its fixed annuity, payout annuity and structured settlement businesses to a subsidiary of Global Atlantic Financial Group (Global Atlantic).
Following the sale, Hartford Investment Management Company (HIMCO), The Hartford’s investment management group, will continue to manage a significant majority of Talcott Resolution’s investment assets for an initial 5-year term. HIMCO also will be retained by Global Atlantic to manage certain assets associated with the post-closing reinsurance agreement.
As part of the transaction, approximately 400 Hartford employees will become employees of the new company, located at offices currently owned or leased by The Hartford in Windsor, Connecticut, and Woodbury, Minnesota.
The Hartford’s financial advisors for the transaction are J.P. Morgan Securities LLC and Goldman Sachs & Co. LLC and the company’s legal advisor is Sidley Austin LLP. The financial advisor for the investor group is BofA Merrill Lynch.