Ex-Third Point Analyst Seeks to Oust
Activist Michael Gorzynski has launched
a change-of-control director fight at the mini-conglomerate, seeking
to remove CEO Philip Falcone, among other changes.
Updated on February 19,
2020, 10:54 AM ET
HC2's Philip Falcone
Point LLC analyst Michael Gorzynski on Tuesday, Feb. 18,
launched a change-of-control director fight that seeks to install six
dissident directors to the board of HC2
Holdings Inc. (HCHC) in an effort to oust the investment
vehicle’s CEO, Philip
“Even if Mr. Falcone enacts some incremental enhancements designed to
improve HC2’s short-term prospects, we believe any road forward
proposed by him will lead off a cliff,” said Gorzynski in a statement.
Gorzynski’s fund, Percy Rockdale, owns about 5% of HC2 shares and took
issue with the company's conglomerate structure and debt load. The
fund noted Falcone has failed to explain to investors how HC2 has the
expertise to manage controlling stakes in companies operating across a
number of sectors, including insurance, construction, energy,
telecommunications, life sciences and broadcasting.
HC2 said Tuesday it was surprised that Gorzynski moved forward with
its proposed candidates without ever meaningfully engaging with
management and the board.
“HC2 has offered to speak on multiple occasions with Percy Rockdale in
an attempt to satisfy their concerns in a cooperative manner that
benefits all stockholders,” the company said.
contest emerged a few weeks after Gorzynski on Jan. 27 reported that
it had acquired 5% of HC2 and planned to nominate a yet-to-be-revealed
slate of directors for HC2’s board, though it was unclear if the fund
was trying to remove Falcone. The Deal suggested at
the time that Gorzynski’s comments could mean he was seeking to oust
Falcone with a contest.
More recently, following Gorzynski’s agitations, Falcone appears to
have started to take steps to mollify disgruntled investors.
31 the firm announced a
long-awaited deal to sell its offshore engineering division, Global
Marine Holding LLC, for $250 million, a move intended to help reduce
HC2’s debt load.
In the Tuesday letter, Gorzynski noted that HC2 has about $470 million
of senior, secured notes outstanding with an 11.5% interest rate. The
fund argued that it was a significant debt load with a problematic
high interest rate.
addition, the company reported Feb. 10 that it is in “advanced
discussions” to divest its Continental
Insurance unit and it had retained Jefferies
Co. – which is HC2’s largest shareholder with a 7.7% stake --
as an adviser to explore strategic options for its steel construction
However, Gorzynski suggested that the move to sell Continental and
explore alternatives for DBM appears to be a “kneejerk” reaction to
his campaign. He urged the company to avoid major corporate actions
until after the annual meeting and proxy fight, which is expected in
October, The Deal said that HC2 could be targeted by an activist hedge
funds after the Shareholder Forum, a New York-based research firm, disclosed the
results of a survey commissioned by two undisclosed HC2 investors
finding that only 24% of polled investors had confidence in the
current board and executives. Also, 48% of those polled said it would
be “effective” for HC2 to sell some or all of its existing
subsidiaries to reduce debt.
Even with significant investor opposition, Falcone’s own stake in HC2
could represent a hurdle for Gorzynski’s director fight. A Feb. 14
Falcone Schedule 13D filing suggests that the HC2 CEO is the
beneficial owner of 17% of shares, about 9 million. However, he
doesn’t appear to own the majority of those, at least not yet.
According to the filing, Falcone currently owns 1.3 million shares of
which "he has the sole power to vote or dispose." Beyond the 1.3
million shares, he has stock options that could bring his total to
Gorzynski’s candidates have backgrounds in insurance, energy, telecom,
investment management, operational turnarounds and debt restructuring.
One candidate, Liesl Hickey, is a political strategist who was
executive director of the National Republican Congressional Committee
between 2013 and 2014. Since 2016, she has served as an adviser at
Guide Post Strategies, Blitz Canvassing and Pathway Partners, and a
partner at Ascent
HC2’s existing board, including directors with telecom, energy,
marketing, communications, sports/entertainment and media advertising,
and other areas. Most of the incumbent director tenures are in
3-to-5-year ranges, however, one director, Julie Springer, joined
earlier this month. Her addition may be in response to the activist
campaign and concerns raised by the Shareholder Forum's survey about
the existing board.