HC2 Holdings, Inc. (“HC2” or the “Company”) (NYSE: HCHC), a
diversified holding company, today issued the following letter from
Phil Falcone, the Company’s President and CEO, to all stockholders:
LETTER FROM THE PRESIDENT & CEO:
On behalf of HC2 Holdings, Inc. (“HC2"), I want
to wish you the best of health in these very uncertain times.
The COVID-19 pandemic is unfortunately affecting
the health and welfare of everyone around the world. As we move
forward, we will continue to prioritize the well-being of our
employees and partners across our portfolio companies while working
to minimize the disruption to our business commitments.
Having recently reported our record results for
calendar year 2019 and a subsequent snapshot of what our
subsidiaries are experiencing in this challenging environment, I
thought it was important to take a step back and revisit with you
our approach to managing our assets, our approach to creating
stockholder value and how we are positioning ourselves for the
future.
The HC2 Vision
Our fundamental approach – my “vision” for
creating value at HC2 – has not changed since our first acquisition
in May 2014: to acquire companies that we believe are
undervalued or uniquely positioned to achieve
growth and profitability through an active management
process and to acquire unique assets that may have little
to no cash-flow stream and strategically build upon that
base. When I first embarked on this path, I looked at various
structures that would be most appropriate to execute on this
long-term “vision,” realizing it would require both permanent
capital and access to capital. I always believed that a listed
entity would provide the most “permanent” capital base to allow for
a sustainable approach to creating value. That entity, now HC2, was
a New York Stock Exchange-listed “shell” company with a
discontinued telecom business, some cash on the balance sheet, a
small net operating loss and very few legacy liabilities.
Since mid-2014, taking advantage of this listed
structure has provided the flexibility needed to accomplish both
the acquisition of these unique assets and the ability to
capitalize on asset appreciation and creation of incremental value
through a subsequent sale process, without, of course, affecting
HC2’s overall strategy.
Our Vision in Action – Global
Marine
Global Marine (GMSL) is one successful example
of this process of acquiring, building, and
exiting. Having closed on our acquisition in the fourth
quarter 2014 for approximately $260 million and benefitting from an
$18 million shareholder dividend shortly thereafter, we continued
down the path of executing our plan and expanding GMSL’s asset base
with strategic acquisitions using GMSL equity or cash on their
balance sheet (and thus avoiding the need to contribute additional
HC2 capital). These acquisitions not only diversified GMSL’s
business lines but created additional capacity for the expansion of
their platform and reach.
While the decision to sell GMSL and capitalize
on the appreciation was announced as early as the fourth quarter
2018, immediately thereafter the sales process came under intense
pressure and nearly came to a halt as we faced unexpected and
unforeseen global political headwinds given GMSL's association with
Huawei Technologies through its 49% owned HMN joint venture.
We creatively overcame this challenge by creating a separate
structure for both the joint venture and the base business,
allowing for two distinct buyers for the two businesses, ultimately
leading to two sales for a combined $390 million. Our
hands-on approach and execution of this strategy, while time
consuming, was paramount to getting the transaction completed and
launching our debt reduction plan.
Our Vision in Action – Continental
Insurance
While buying right is the key
to a profitable return, our long-term strategy and the
decision-making concerning the industries in which we invest is
critical to our success. Evaluating the ebbs and flows of an
industry and then drilling down and analyzing its
cyclicality, its ability to withstand a downturn, our ability to
add value and whether there is a compelling and sustainable
business or product line are merely a few of the things that we
think about in our acquisition process. Of course, as we look
to grow and diversify the HC2 portfolio, a key component when
allocating capital is the return potential of that target relative
to other opportunities in the marketplace.
We think of each of these lines of business as a
“silo” with the objective to grow each line to a
critical mass. But we remain nimble – if something changes our view
on the long-term opportunities in a particular “silo” and alters
our perception or appreciation of that asset, including the
appropriate return relative to the risk, we make the strategic
decision to exit.
Insurance is a prime example of this dynamic in
action. We acquired, built and grew a very successful
insurance platform over the past four years that provided
management fees and an opportunity for potential dividends from
managing the assets.
Considering that my core focus with insurance
acquisition and the buildout of the platform was centered around
the asset management business and not CGIC, which houses the claims
servicing business, the recent regulatory headwinds have made it
increasingly difficult for the insurance business to meet our
return hurdles so we have decided to pursue its sale. Upon the
successful sale of the business, we will again allocate the
proceeds to pay down debt, which we believe will be accretive to
our overall cash flow by further reducing our interest expense.
Our Vision for the Future
The future for HC2 is an
evolving process. From the outset, over 5 years ago, the objective
has been, first and foremost, to create stockholder
value. When you look beyond the debt and drill down on
the underlying assets, there is absolutely no denying that there is
real shareholder value.
Realizing and clarifying that value is the
ensuing strategy that we, as a company, from the Board on down,
have embraced. The first logical step, and one we’ve discussed
often, has been to reduce and/or eliminate holding company
indebtedness. The first step in that process was the monetization
of GMSL. The upcoming closing of the sale of the HMN joint venture,
which has been slightly delayed because of the pandemic but remains
targeted for April 2020, will further contribute to our debt
reduction. Again, as we mentioned, the insurance sale process
continues to move ahead, although there is no certainty that a deal
will be completed.
In addition, while the recent announcement of
the exploration of strategic options for DBM, our construction
business, will undoubtedly be impacted by the pandemic, we are
still confident that there will be some form of transaction in the
near future. Whether it is an outright sale or a financing at
the operating level with a portion of the proceeds to reduce debt
at holdco, we are determined to complete the process.
Ultimately, upon the execution of these
potential transactions, we will be a leaner operation with
reduced overhead and indebtedness, with a focus on growth and
innovation. Broadcasting and American Natural Energy
(f/k/a ANG) (our compressed natural gas stations) will both be very
well positioned for the future. Pansend, our Life Sciences unit, is
potentially on the verge of a product breakout with both R2 and
MediBeacon, while Benevir remains as a longer-term potential
value-add.
As we execute on our plan and
continue to build on our asset core base, I am very confident that
we are well-positioned for the future. Furthermore, while there are
a number of things we do well, there are always areas for
improvement. I’m committed to addressing those areas,
especially around the ongoing reduction of both overhead and
indebtedness. In addition, our Board composition will continue to
diversify and grow to ensure it represents all the necessary skills
to best guide our entire organization. Reducing overhead and
indebtedness, as well as diversifying our Board, will help us
operate more profitably and efficiently as we stay focused on our
most important responsibility: creating stockholder value.
In closing, I want to leave you with a few
thoughts. Many years ago, a very successful mentor told me the
secret of his success, telling me, “I can’t guarantee that if you
work hard you will be successful, but I can guarantee that if you
don’t work hard you won’t be successful.”
It’s the cornerstone of my philosophy, and as the
leader of HC2, I try to follow that mantra and lead by example.
There will always be challenges, but the important thing is to
recognize them, work very hard to overcome them and try to avoid
them going forward. Making positive adjustments
along the way is part of a successful process. I
personally am prepared to continue the evolution and make necessary
changes to further enhance value as we move forward. I’ve spent my
life building, creating, and competing. It’s what I love to do and
I believe I do well. Moreover, it’s paramount for me to finish our
effort to maximize stockholder value for all and not get distracted
by false accusations from certain short-term stockholders that are
inexperienced, misinformed, favor personal attacks over
constructive dialogue and believe in their own illusory
capabilities while offering no track record of success and no
vision.
However, the fact that these short-term
stockholders recognize that there is real value in our
assets, as that is clearly why they are trying to step
into the position of control and to capitalize on what we’ve worked
very hard to create, is its own validation. Needless to say, I look
forward to continuing to successfully navigating alongside my team
to unlock and explore opportunities to enhance our existing
entities and investments as we position HC2 for a prosperous
future.
I want to close the way I opened, by repeating
my hopes for you and your families to be safe and healthy.
Phil Falcone
Cautionary Statement Regarding Forward-Looking
Statements
Safe Harbor Statement under the Private Securities Litigation
Reform Act of 1995: This communication, and certain oral statements
made by our representatives from time to time may contain,
forward-looking statements. Generally, forward-looking statements
include information describing actions, events, results, strategies
and expectations and are generally identifiable by use of the words
“believes,” “expects,” “intends,” “anticipates,” “plans,” “seeks,”
“estimates,” “projects,” “may,” “will,” “could,” “might” or
“continues” or similar expressions. The forward-looking statements
in this communication include, without limitation, any statements
regarding our expectations regarding building stockholder value,
future cash flow, longer-term growth and invested assets, the
timing or prospects of any refinancing of HC2's remaining corporate
debt, any statements regarding HC2’s expectations regarding
entering definitive agreements in respect of the potential
divestitures of Continental Insurance and/or DBM Global, reducing
HC2’s leverage and related interest expense at the holding company
level generally and with the net proceeds of such divestitures,
reducing corporate overhead, growth opportunities at HC2’s
Broadcasting and Energy businesses and unlocking value at HC2’s
Life Sciences segment. Such statements are based on the beliefs and
assumptions of HC2’s management and the management of HC2’s
subsidiaries and portfolio companies. The Company believes these
judgments are reasonable, but you should understand that these
statements are not guarantees of performance or results, and the
Company’s actual results could differ materially from those
expressed or implied in the forward-looking statements due to a
variety of important factors, both positive and negative, that may
be revised or supplemented in subsequent statements and reports
filed with the Securities and Exchange Commission (the “SEC”),
including in our reports on Forms 10-K, 10-Q and 8-K. Such
important factors include, without limitation, issues related to
the restatement of our financial statements; the fact that we have
historically identified material weaknesses in our internal control
over financial reporting, and any inability to remediate future
material weaknesses; capital market conditions, including the
ability of HC2 and its subsidiaries to raise capital; the ability
of HC2’s subsidiaries and portfolio companies to generate
sufficient net income and cash flows to make upstream cash
distributions; volatility in the trading price of HC2’s common
stock; the ability of HC2 and its subsidiaries and portfolio
companies to identify any suitable future acquisition or
disposition opportunities; our ability to realize efficiencies,
cost savings, income and margin improvements, growth, economies of
scale and other anticipated benefits of strategic transactions;
difficulties related to the integration of financial reporting of
acquired or target businesses; difficulties completing pending and
future acquisitions and dispositions; activities by activist
stockholders, including a proxy contest, consent solicitation or
any unsolicited takeover proposal; effects of litigation,
indemnification claims and other contingent liabilities; changes in
regulations and tax laws; the risks and uncertainties associated
with, and resulting from, the COVID-19 pandemic; and risks that may
affect the performance of the operating subsidiaries and portfolio
companies of the Company. Although HC2 believes its expectations
and assumptions regarding its future operating performance are
reasonable, there can be no assurance that the expectations
reflected herein will be achieved. These risks and other important
factors discussed under the caption “Risk Factors” in our most
recent Annual Report on Form 10-K filed with the SEC, and our other
reports filed with the SEC could cause actual results to differ
materially from those indicated by the forward-looking statements
made in this communication.
You should not place undue reliance on forward-looking
statements. All forward-looking statements attributable to HC2 or
persons acting on its behalf are expressly qualified in their
entirety by the foregoing cautionary statements. All such
statements speak only as of the date hereof, and unless legally
required, HC2 undertakes no obligation to update or revise publicly
any forward-looking statements, whether as a result of new
information, future events or otherwise.
Important Additional Information and Where to Find
It
HC2 plans to file a proxy statement (the “2020 Proxy
Statement”), together with a WHITE proxy card, and a definitive
consent revocation statement (the “Consent Revocation Statement”),
together with a WHITE consent revocation card, with the SEC,
respectively, in connection with the solicitation of proxies for
the annual meeting of HC2’s stockholders (the “Annual Meeting”) and
the consent solicitation initiated by Percy Rockdale LLC and
certain of its affiliates (the “Consent Solicitation”).
STOCKHOLDERS ARE URGED TO READ THE 2020 PROXY
STATEMENT AND THE CONSENT REVOCATION STATEMENT (INCLUDING ANY
AMENDMENTS OR SUPPLEMENTS THERETO) AND ANY OTHER RELEVANT DOCUMENTS
THAT HC2 FILES WITH THE SEC CAREFULLY IN THEIR ENTIRETY WHEN THEY
BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION.
Stockholders will be able to obtain, free of charge, copies of
the 2020 Proxy Statement, the Consent Revocation Statement,
any amendments or supplements thereto and any other documents
(including the WHITE proxy card and the WHITE consent revocation
card) when filed by HC2 with the SEC in connection with the Annual
Meeting and the Consent Solicitation at the SEC’s website
(http://www.sec.gov), at HC2’s website (http://ir.hc2.com) or by
contacting Okapi Partners LLC by phone at (877) 629-6355, by email
at info@okapipartners.com or by mail at 1212 Avenue of
the Americas, 24th Floor, New York, New York 10036.
Participants in the Solicitation
HC2, its directors and certain of its executive officers and
employees may be deemed to be participants in the solicitation of
proxies and consent revocation cards from stockholders in
connection with the Annual Meeting and the Consent Solicitation.
Additional information regarding the identity of these potential
participants, none of whom (other than Philip A. Falcone, HC2’s
President and Chief Executive Officer) owns in excess of one
percent (1%) of HC2’s shares, and their direct or indirect
interests, by security holdings or otherwise, will be set forth in
the 2020 Proxy Statement, the Consent Revocation
Statement and other materials to be filed with the SEC in
connection with the Annual Meeting and the Consent Solicitation.
Information relating to the foregoing can also be found in
HC2’s definitive proxy statement for its 2019 annual
meeting of stockholders (the “2019 Proxy Statement”), filed
with the SEC on April 29, 2019. To the extent holdings of HC2’s
securities by such potential participants (or the identity of such
participants) have changed since the information printed in the
2019 Proxy Statement, such information has been or will be
reflected on Statements of Ownership and Change in Ownership
on Forms 3 and 4 filed with the SEC.
HC2 (NYSE:HCHC)
Historical Stock Chart
From Mar 2024 to Apr 2024
HC2 (NYSE:HCHC)
Historical Stock Chart
From Apr 2023 to Apr 2024