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support for fair value realization

of stock investments in

DBM Global Incorporated

(f/k/a Schuff International Inc.)



Support of Minority Shareholder Interests

The Shareholder Forum had offered to support Appraised Value Rights ("AVR") of DBM (f/k/a Schuff International) minority shareholders in 2014 following a $31.50 per share tender offer by the company's controlling shareholder, HC2 Holdings, Inc., with the stated intent to proceed with a short-form merger "as soon as practicable.”

HC2 acquired DBM shares in the 2014 tender offer and other purchases bringing its total holdings to 92% of outstanding DBM shares, but has not proceeded with a merger. The Forum has continued to support the minority shareholder interests of its AVR participants in this context.



Participant distribution:

Reported objectives of HC2's leader with 2.2% real ownership


Note: The calculation of a 2.2% ownership interest for the report below that HC2's Chairman, President and CEO "owned only 565,951 shares outright, currently worth just $4.2 million," is based on the total number of shares outstanding as most recently stated in the August 10, 2015, HC2 Holdings, Inc, SEC Form 10-Q Quarterly Report for the quarterly period ended June 30, 2015.


Source: The New York Times | DealBook, September 3, 2015 article

Philip Falcone, Former Head of Vast Fund, Tries a 3rd Act


Philip A. Falcone, barred from the securities business until 2018, now oversees HC2 Holdings, a publicly traded company. Credit Chang W. Lee/The New York Times

Philip A. Falcone, the brash hedge fund titan who once managed $26 billion before stumbling and running afoul of regulators, is pressing ahead on a new comeback effort, his second.

His latest investment platform is a publicly traded company with $800 million in assets called HC2 Holdings. It has bought a couple of midsize businesses — an undersea cable installer and a steel fabricator — that are intended to generate cash to help support several smaller growth prospects that include operations in wireless services, natural-gas truck-fueling stations, life sciences, insurance and sports.

For Mr. Falcone, the goal is to make smart acquisitions and hit home runs with some of the smaller earlier-stage ventures, much as he once did by buying bonds of companies in financial distress.  

The new venture also allows him to stay active during a regulatory ban that bars him from the securities and investment advisory businesses until 2018; regulators have allowed him to run a public company that buys whole businesses instead of managing a fund trading stocks and bonds.

In an interview, Mr. Falcone said he was aiming to “go out and acquire companies and build on that,” creating value through growth in diverse industries.

“I feel like, not that I have a lot to prove, but I look at this vehicle as ‘success is the best revenge,’ ” he added.

Charles Frischer, a private investor in Seattle whose family owns 1.7 million shares, or 6.5 percent, of HC2, said Mr. Falcone would be “completely redeemed” if he could build HC2’s assets to $2 billion or $3 billion.

But Mr. Falcone faces hurdles at HC2, which has been hampered by his history and has already encountered a few setbacks. After quadrupling in price based on its debt-financed acquisitions, its stock has fallen by 40 percent this summer amid sales by a large investor. And a $195 million takeover bid that could have doubled HC2’s size was rejected recently.

And the results at his first comeback, a larger public-company vehicle he started six years ago, were underwhelming.

Still, Mr. Falcone is undeterred.

“People kind of look at me as I am unbelievably aggressive, and I probably do make some people nervous,” Mr. Falcone, a former Harvard hockey center, said in a large conference room in his Park Avenue office for which he pays part of the rent because HC2 alone is not big enough to afford it.

Explaining his motivation, he said, “I’m a competitor. I think I’m an unbelievable competitor.” He added, “As the youngest of nine kids in a three-bedroom house, I learned how not to give up.”

Mr. Falcone, 53, has already known triumph and adversity on a large scale.

After a decade as a high-yield bond trader on Wall Street, he began the Harbinger Capital hedge fund in 2001, initially focusing on distressed debt. In 2007, he personally earned $1.7 billion and doubled his investors’ money on a winning bet against subprime mortgages.

He also indulged in a real estate spending spree, paying $49 million for a 27-room Manhattan townhouse once owned by the Penthouse publisher Bob Guccione and $39 million for a mountainside Caribbean villa in St. Barts.

But in 2008, he got caught in the market downdraft with too many illiquid positions just as he faced $10 billion in redemption demands from his investors. Those demands forced him to block investor exits, even as he took a $113 million loan in 2009 to pay his own taxes while he was also buying out a co-founding partner for about $100 million.

While Harbinger documents gave him the right to obtain the loan, the Securities and Exchange Commission said in 2013 that he did not form a required fairness committee, did not pay the same rate as Harbinger was paying to borrow and did not disclose the loan to investors for five months.

The cloud of the S.E.C. inquiry, which began in 2010, coupled with losses in 2010 and 2011, eventually doomed the hedge fund. Still two-fifths owned by Mr. Falcone, it retains a few illiquid holdings, chiefly a 48 percent stake in LightSquared, a wireless spectrum owner potentially worth billions, and a hotel-casino-golf resort in Vietnam.

Mr. Falcone’s first comeback attempt was a public company shell he bought through his hedge fund in 2009 and renamed Harbinger Group, now known as HRG Group.

With Mr. Falcone as chief executive, HRG grew to a market value of $2.7 billion with debt of $1.4 billion, partly by issuing new shares in exchange for assets from the hedge fund. For example, it acquired a majority stake in Spectrum Brands, which sells Black & Decker appliances and George Foreman grills.

But the S.E.C. charges and Harbinger’s losses put a cloud over HRG stock. An article in Barron’s noted that the shares traded at a discount to its net asset value, “partly reflecting investor uneasiness with Falcone.”

With the hedge fund selling HRG stock to meet redemptions, two outside investors, Leucadia National and Fortress Investment Group, built positions totaling 31 percent by mid-2014, gaining three board seats. And that paved the way for Mr. Falcone’s departure.

In early 2014, HRG invested about $20 million for a 40 percent stake in HC2 as a new but smaller Falcone acquisition platform with a broader mandate that gave him more autonomy. Mr. Falcone said HRG directors “had lived through the issues with the S.E.C. and I think it created a little bit of tension and uneasiness with the board.” In order to expand HRG in the wider way he envisions for HC2, “I really would have had to push and battle.”

So Mr. Falcone turned his focus to HC2. Last November, he stepped down as HRG’s chief executive, reaping a $40 million exit payout. During his tenure, HRG stock’s price gain of 78 percent trailed broader market averages. The Standard & Poor’s 500-stock index, for example, gained 135 percent over the same period.

HC2 is now the stage for Falcone comeback No. 2.

Last year, the company paid $260 million for Global Marine Systems, an undersea cable installer, and $85 million for the Schuff International steel fabrication business.

Those companies are meant to generate cash to help fund the venture-stage growth bets. One such bet is American Natural Gas, a small chain of 10 truck fueling stations that sell compressed natural gas instead of diesel fuel.

“We probably started off a little bit slow,” Mr. Falcone told investors in August, referring to American Natural Gas. “We’re going to make a big push in that area over the next six to 12 months.”

But the risks can be seen in the steep 11 percent interest rate that HC2 is paying on its $300 million in junk-bond debt, and in its roller coaster stock action.

Earlier this year, with HC2 stock still rising, Mr. Falcone sought to buy MCG Capital — a middle-market commercial finance company whose cash assets could have doubled HC2’s size — in a bid of mostly stock. MCG, however, spurned Mr. Falcone, choosing another suitor and raising the prospect of potential regulatory hurdles because of the S.E.C. case against him.

Just then, with the takeover battle in full swing, HRG signaled that it had begun selling HC2 shares, sending the stock price sharply lower and cutting the value of the bid for MCG. As the stock fell, Mr. Falcone said the question arose why he wasn’t buying. On Aug. 14, MCG holders decisively rejected the Falcone bid.

Although Mr. Falcone had been blocked from buying HC2 shares just then by a pre-earnings trading blackout, the issue of his HC2 stock ownership remains valid. Most of his holdings are in options, which he can earn under a performance formula tied to bolstering the company’s net-asset value.

While the latest HC2 proxy lists him as owning 2.4 million shares for an 8.9 percent stake, most of that count represents options he has not exercised. As of April 15, he owned only 565,951 shares outright, currently worth just $4.2 million.

That means Mr. Falcone gains more if the stock rises than he loses if it drops. Trying to build HC2 quickly to reap such rewards could heighten the risk for other investors. But Mr. Frischer, the Seattle investor, said the upside from HC2’s speculative holdings “could be very high.”

Explaining his small stake in HC2, Mr. Falcone said his money “is tied up,” with about one-third in his personal real estate holdings — estimated to be worth a few hundred million dollars — and much of the rest in his remaining stakes in the hedge fund and HRG. As a concession to his shrunken empire, this year he sold his minority stake in the Minnesota Wild professional hockey team.

Mr. Falcone insists he is not going to rush things at HC2, calling the recent stock-price decline “a blip.”

“From a logic perspective, I have to take my time, I can’t be flippant,” he said. “I’m looking to build value between now and 10 years from now. It doesn’t happen overnight.”

A version of this article appears in print on September 4, 2015, on page B1 of the New York edition with the headline: Former Head of Vast Fund Tries 3rd Act..

Copyright 2015 The New York Times Company



The project supporting investor interests in DBM Global Incorporated (f/k/a Schuff International, Inc.) is being conducted by the Shareholder Forum for the benefit of Participants that have reserved Appraised Value Rights ("AVR") Management, subject to conditions including standard Forum policies that each Participant is expected to make independent use of information obtained through the Forum and that participation is considered private unless the Participant specifically authorizes identification.

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