By Michael Gaffney
On January 1, 2019, the Telegram & Gazette published an “article” pertaining to the sale of Hanover Insurance’s interests in Chaucer Holdings Ltd. The “article” was clearly a press release with some commentary.
Disclosure: I hold a minor amount of Hanover stock ($25,000) and my wife was a former employee.
Much to do about nothing? Hopefully, but let’s lay it out and discuss:
A year and a half ago, Hanover conducted a purge of employees allegedly to reduce payroll for purposes of furthering company growth. However, it has not been reported that they have engaged in any growth activities such as acquisitions.
Rather, they have sold a profitable division in Chaucer Holdings Ltd. The reason for the sale is not disclosed and the purpose of the sale seems to dance around the possibility of furthering business investment, but note the careful language here “could go to business investments”. From the article:
“About $450 million of that will go to shareholders in the form of stock buybacks and dividends. Hanover directors have authorized an accelerated $250 million share buyback program and about $200 million for a special dividend. The dividend of $4.75 per share of common stock will be paid Jan. 25.
The rest of the proceeds could go to business investments, share buybacks and other options, according to a statement from Jeffrey M. Farber, Hanover Chief financial officer.”
Earlier this year, the man who saved Hanover Insurance, Michael Angelini, resigned from the board of directors.
Now there are plenty of reasons Hanover may have sold Chaucer Holdings Ltd. There are significant issues with Brexit and the EU. But, if it was an issue, it is unlikely that Chaucer Holdings Ltd. Would have sold at a premium. Unfortunately, it appears that the Telegram & Gazette made no attempt to inquire as to the reason for the sale.
What is going on with Hanover Insurance? It is an important question for Worcester (and presumably the Telegram & Gazette). If they are looking for a buyer for their book of business, they certainly have put themselves in a great position:
- They increased short-term profitability by reducing staff.
- They have sold a profitable oversees division that would have seriously complicated any domestic sale of their book of business.
- They are using the proceeds for stock dividends and share buybacks to increase and strengthen the stock value.
- They haven’t made any substantial business investments and have hedged whether that is their intention. The Telegram & Gazette owes it to its readers to ask why Hanover Insurance has made the financial moves it has made.
Hanover Insurance owes it to Worcester to be abundantly clear with its intentions.
If Hanover Insurance was to be bought out, it would financially devastate the City of Worcester. There is no doubt that any buyer would transfer services to its existing locations, leaving Worcester with another empty building and thousands of lost jobs.