Activist Target: HC2 Holdings
A survey commissioned by two, unnamed
investors suggests shareholders want Phil Falcone's holding company to
consider new directors and asset sales.
Updated on October 08, 2019, 12:01 PM ET
Shareholders of Philip
Falcone’s investment vehicle HC2
Holdings Inc. (HCHC) may be seeking out an activist.
the very least there are some very disgruntled investors in Falcone's
publicly-traded successor to his embattled hedge fund, Harbinger
Capital Partners LLC.
Sept. 27, the Shareholder Forum, a New York-based research firm,
disclosed the results of a survey commissioned by two undisclosed HC2
Investors. The study found that only 24% of polled HC2 investors had
confidence in the current board and executives while 68% of
shareholders supported adding at least some new directors to HC2’s
five-person board. Respondents to the survey who owned more than
100,000 shares showed a much stronger two-thirds level of support for
replacing all or most of the board.
survey also found that 70% of respondents wanted HC2 to defer
investments in new ventures until cash flow from profitable operations
has reduced existing debt to “manageable levels of cost and risk.”
Also, 48% of those polled said it would be “effective” for HC2 to sell
some or all of its existing subsidiaries to reduce debt while an
additional 32.5% said such a move would have “some benefit.”
owns majority stakes in steel construction firm, DBM
Marine Group, which installs and repairs submarine
communications cables and insurance company Continental LTC Inc. It
also owns smaller energy and telecommunications subsidiaries, as well.
HC2 has made a number of acquisitions over the years – most recently
its energy portfolio company American
Natural Gas in June acquired natural gas provider
ampCNG for $41 million.
appears to already be considering a sale of at least one of its units.
According to an August report issued by B. Riley analyst Sarkis
Sherbetchyan, HC2 has received "multiple preliminary bids from
high-quality acquirers," including bids for Global Marine and bids for
a combination of Global Marine and a joint venture. B. Riley values
the marine services division at $400 million, of which 72.5% is owned
potential sale of the marine services segment could enable HCHC to
rapidly reduce debt, which is management’s stated goal," Sherbetchyan
said in the report.
HC2 spokesman said the sale of Global Marine is “clearly” a top
priority and the company continues to pursue multiple paths to
maximize the value of the unit though a very “active and ongoing”
process, the spokesman said.
company’s shares have mostly been on a downward trajectory of late,
trading at around $2 a share recently. HC2's share price has dropped
23% in 2019 so far, and the company has been in the red by 36%, 29%
and 18% over two, three and five years, respectively.
Falcone, a hedge fund billionaire, was charged in 2012 by the Securities
and Exchange Commission with fraud. The SEC alleged
that Falcone was guilty of manipulating bond prices and
misappropriating client assets, market manipulation and betraying
2013, Falcone and Harbinger agreed to pay $18 million in a settlement
with the SEC. Falcone admitted wrongdoing and was barred from the
securities industry for at least five years. Separately, Falcone
reached a settlement in 2013 with the New York State Department of
Financial Services prohibiting him from exercising control over a New
York insurer, for seven years. HC2 controls an insurance company based
is unclear how many HC2 investors participated in the survey or
whether investors seeking an asset sale would like to see certain
companies sold, such as the Marine services unit or the company's
construction group, DBM, as opposed to others.
so, it is likely that the fund managers who commissioned the survey
are hoping to use it to attract a traditional activist hedge fund
manager, who could use its results to help drive some board change and
divestitures. At the very least, it appears the survey may help to
keep the pressure on HC2 as it conducts its sales process for the
marine services segment.
Already, there are a couple activist-like funds in the stock. Raging
Capital Management LLC is HC2’s ninth largest
institutional shareholder with a 1.9% stake. Also, B. Riley Capital
Management LLC, which has reported activist-like positions and
launched unsolicited acquisition proposals at other companies, is the
firm’s largest shareholder with a 9.19% stake.
is unclear when the deadline is to nominate directors for HC2’s 2020
annual meeting, which is likely to take place in June. However, the
company allows for written consent solicitations, which means an
activist could launch an expedited director election without having to
wait for next annual meeting.
Insiders own about 8% of HC2, according to FactSet. Of that, Falcone
controls about 6%, according to FactSet.
spokesman for HC2 said that the company is aware of the concerns of
its investors, including those discussed in the survey.
spokesman said is particularly aware of concerns related to the
company’s balance sheet and reducing debt at the holding company level
and is “working hard to alleviate those concerns.”
we show progress in improving our results and balance sheet, we
believe the benefits of a diversified global portfolio will become
even more apparent to our shareholders,” the spokesman said.