Believes the Board Has Allowed Chronic
Mismanagement, Reckless Decision-Making, and Rampant Self-Dealing
to Destroy Hundreds of Millions of Dollars in Stockholder
Value
Contends That Philip Falcone and the
Incumbent Directors Lack the Discipline, Focus and Vision to Help
HC2 Avert Complete Financial Ruin
Outlines the Five Pillars of a Fresh
Strategy for Reducing Excessive Corporate Overhead, Optimizing
HC2’s Underperforming Portfolio and Returning Capital to
Stockholders
Urges Stockholders to Vote on the
GREEN Consent Card For Our Six
World-Class Nominees, Each of Whom Possess the Expertise and Skills
That Can Support the Implementation of a Value-Enhancing Strategic
Plan
Warns Stockholders to Not be Misled by the
Board’s Low-Road Smear Campaign or its Absurd Claim That HC2 Can
Simply “Pivot” to Become a “Growth and Innovation Company”
MG Capital Management, Ltd. (together with Percy Rockdale LLC,
the nominating stockholder, and its affiliates, “MG Capital” or
“we”), a significant stockholder of HC2 Holdings, Inc. (NYSE: HCHC)
(“HC2” or the “Company”), which collectively with the other
participants in its solicitation beneficially owns more than 6% of
the Company’s outstanding shares, today issued the below letter to
stockholders in support of its proposals to remove the entire Board
of Directors and install its six highly-qualified director
candidates with exceptional experience and relevant expertise.
We are asking stockholders to consent to our proposals to remove
and replace HC2’s Board of Directors by voting on the
GREEN consent card. We urge you
sign, date and return your
GREEN consent card today.
Please return each and every GREEN consent card you receive. Do not return
any white revocation card sent to you, even as a protest vote
against the current Board.
The full text of our letter to stockholders is below. To learn
more about our case for change and how to consent, visit
www.ABetterHC2.com.
***
April 7, 2020
Fellow Stockholders:
MG Capital Management, Ltd. (together with Percy Rockdale LLC,
the nominating stockholder, and its affiliates, “MG Capital” or
“we”), a private investment entity that exclusively invests the
personal capital of Michael Gorzynski, owns more than 6% of the
outstanding common stock of HC2 Holdings, Inc. (“HC2” or the
“Company”). Our common stock position is larger than the combined
holdings of Chief Executive Officer Philip Falcone and all five
other members of the Board of Directors (the “Board”). Because we
are so closely aligned with you, we are writing to you today in
connection with our solicitation of your written consent to
reconstitute HC2’s misaligned and underperforming Board with our
six highly-qualified director candidates.
After attempting to establish a productive dialogue with Mr.
Falcone and the Board this past winter, it became clear to us that
HC2’s current leadership lacks the independence, discipline, focus
and vision needed to properly unlock the value trapped within the
Company’s underperforming assets. We also found it deeply troubling
that Mr. Falcone appears to exert a disproportionate level of
control over nearly all aspects of HC2’s corporate governance,
including when it comes to matters related to his own compensation
and related party transactions involving his affiliates. The more
we analyzed and studied HC2, the more convinced we became that
wholesale change is needed atop the Company in order for
stockholders’ best interests to finally be prioritized.
We are now asking you to consent to all three of our proposals
on the GREEN consent card by
voting for the Bylaw Restoration Proposal, the Removal Proposal and
the Election Proposal. By taking this action, you can help remove
the ineffective directors appointed during Mr. Falcone’s tenure and
completely refresh the Board with the following exceptional
nominees: George Brokaw, Kenneth Courtis, Michael Gorzynski, Robin
Greenwood, Liesl Hickey and Jay Newman. We urge you sign, date and
return your filled out GREEN consent card today.
We Believe That HC2
Has Never Been Run For the Benefit of Stockholders Since Mr.
Falcone Took Over in 2014
We contend that a brief review of HC2’s history shows that the
Company has simply been Mr. Falcone’s controlled investment vehicle
following his ban from the securities industry in 2013.1 Once the
Securities and Exchange Commission (the “SEC”) prevented him from
managing capital via his hedge fund business, he positioned HC2 to
become his publicly-traded investment holding company. By May 2014,
he was Chief Executive Officer and Chairman of a three-member Board
that was completely ill-equipped to challenge his poor decisions or
prioritize stockholders’ best interests. The wheels were in motion
on HC2, which may as well stand for Harbinger
Capital 2.
While Mr. Falcone and his allies in the boardroom have profited
handsomely over the past six years, the
Company has lost hundreds of millions of dollars in value for
stockholders while consistently underperforming its peers and
relevant equity indices over numerous time horizons. We
believe the record shows that excessive corporate spending,
reckless and self-serving transactions, and insufficient corporate
governance have been the hallmarks of HC2 throughout its history.
Unfortunately, it appears the impact of this mismanagement and
self-dealing has finally pushed the Company to the brink of
financial ruin – not the “pivot” point the Board is suggests.
We Believe the
Incumbent Board Has Put HC2 on a Path to Bankruptcy
The Board has not only failed to articulate and execute a
credible strategy over the years, but it has been unable – or
unwilling – to curtail Mr. Falcone’s value-destructive tendencies.
HC2’s debt-fueled acquisition spree has increased leverage at the
holding company level to 15x the Company’s
current market capitalization, putting stockholders at risk
of being wiped out in a bankruptcy.2 In addition, the Company’s
excessive management compensation, high real estate costs and
concerning related party transactions involving Harbinger Capital
Partners (“Harbinger”) have caused expenses as a percentage of
equity value to swell to approximately 30%.3 These self-inflicted
wounds are now compounded by HC2’s declining revenues and the
economic overhang of the COVID-19 pandemic.
We believe the record shows that the Board has been derelict for
far too long when it comes to demanding accountability and vetoing
anti-stockholder decisions. This falls squarely on the incumbent
directors:
- Wayne Barr, Jr. – We believe Wayne Barr, Jr., who
previously served as Lead Director after joining the Board in 2014,
has failed to check Mr. Falcone’s actions over the past six years.
Mr. Barr has even lost the support of Glass Lewis & Co., who
has not considered him “independent” since 2015. In addition, he
lacks any stated expertise in insurance, energy, marine services
and other sectors to which HC2 is heavily financially exposed. Mr.
Barr was also listed as a reporting person in a Singer family
representative’s recent 13D filing that opposed our efforts to
reconstitute HC2’s Board with credible, experienced and qualified
individuals.4
- Philip Falcone – We contend that Mr. Falcone is the
primary catalyst of the Board’s ineffectiveness and hands-off
oversight approach. After becoming Chairman of what was HC2’s
three-member Board in 2014, Mr. Falcone gradually added directors
that have been either tied to him or unwilling to act as an
impartial check on his reckless decisions. We believe he
constructed the Board in a manner that would insulate him from real
accountability and the consequences typically associated with the
mismanagement of a public company. It is also worth noting that
since Mr. Falcone’s Board tenure began, HC2 has delivered abysmal
total stockholder returns (“TSR”) over one-year (-33.43%),
three-year (-65.56%), five-year (-71.97%) and six-year (-35.14%)
horizons.5
- Warren Gfeller – We are concerned that Warren Gfeller,
who was just recently named interim non-Executive Chairman after
serving on the Board since 2016, was on the Board of Directors of
Zapata Corporation prior to that company becoming Harbinger Group.
We also question why HC2 would suddenly put Mr. Gfeller in his new
role given his lack of stated expertise in broadcasting,
construction, insurance and other sectors that HC2 has financial
exposure to. We also believe it is notable that long-term TSR is
approximately -94% at Crestwood Equities Partners LP (NYSE: CEQP)
since Mr. Gfeller became a director at that company in 2013.6
- Lee Hillman – We feel Lee Hillman, who has been a
director for nearly four years, is completely unfit for service on
the Board. He was Chairman and Chief Executive Officer at Bally
Total Fitness prior to its bankruptcy and during the period in
which the SEC ultimately focused on during its investigation of the
entity’s suspect accounting practices.7 We also wonder whether
there is a past affiliation between Mr. Hillman and Mr. Falcone
given Harbinger’s role in Bally’s restructuring.8
- Robert Leffler, Jr. – We question why Robert Leffler,
Jr., who has been on the Board since 2014, remains a director
today. There is no evidence that he checked Mr. Falcone’s whims
during the period in which he was Lead Director from June 2016
through February 2020 before he was abruptly replaced by Wayne Barr
for a few weeks in March as Lead Director. Moreover, he lacks
stated expertise in areas such as construction, insurance, life
sciences and marine services. We are also troubled by the fact that
Mr. Leffler’s connections to Mr. Falcone date back to his
directorship at Harbinger Group, reinforcing he was never truly
independent.9
- Julie Springer – While we are very supportive of
diversity on the Board, we are disappointed that HC2 hastily added
a female member 6 years into its existence and 3 years after being
publicly criticized by both major proxy advisory firms. We also
feel compelled to question what contributions Ms. Springer – a
marketing executive at an oligopoly rating agency – can be expected
to bring to a holding company focused primarily on
business-to-business and industrial opportunities.
As stockholders look to the future, we question how anyone can
trust Mr. Falcone and the incumbent Board to credibly execute a
value-enhancing turnaround. Five of these individuals dismissed and
ignored stockholder concerns for years prior to MG Capital’s recent
engagement and campaign for change. Does anyone believe that the
current Board will focus on stockholder concerns if they remain in
power? Fortunately, stockholders do not need to risk their capital
on these directors any longer.
We Have Nominated a
Slate of World-Class Director Candidates to Reconstitute HC2’s
Board and Oversee the Implementation of a Superior
Strategy
MG Capital’s slate of impressive director candidates – George
Brokaw, Kenneth Courtis, Michael Gorzynski, Robin Greenwood, Liesl
Hickey and Jay Newman – possess the exact expertise and experience
that HC2 needs during this critical period. They have strong
backgrounds investing in the types of companies and operating the
types of businesses that HC2 is presently invested in. Moreover,
our nominees have deep knowledge of insurance, energy,
telecommunications, investment management, operational turnarounds,
debt restructurings and regulatory affairs—all areas that will
support our transition plan and long-term strategy. We urge you to
make a direct comparison between our candidates and the failed
sitting directors, and then pick the people best suited to guide
HC2 – your company – into the future.
In contrast to the incumbent Board, our slate has a compelling,
executable vision for value creation that is built on the following
strategic pillars:
- Rigorous Expense Reductions – High annual overhead
continues to hinder HC2, representing nearly $4 per share in
present value today. If elected, our nominees will implement
targeted expense management initiatives to cut down on excessive
management and Board compensation, unnecessarily high real estate
costs, questionable related party transactions involving Mr.
Falcone’s affiliated entities and other inefficiencies causing HC2
to run up millions of dollars per year in expenditures.
- Systematic Debt Management – HC2 has a staggering $400
million in holding company debt due at the end of 2021. If elected,
our nominees will work to carry out an orderly and pragmatic
monetization of certain non-core assets in order to help fund the
paydown of debt. The capital derived from reducing corporate
overhead can also fund payments. Our nominees possess significant
credibility and strong relationships with numerous financial
institutions, enabling them to help explore as-needed refinancing
paths that are perhaps unavailable to HC2 under its current
leadership.
- Recovering Misallocated Gains – A growing number of HC2
stockholders have concerns about Board-sanctioned waste and excess.
If elected, our nominees intend to set up a special committee
focused on asset recovery. This committee would investigate
inappropriate and potentially illegal renumerations linked to
related party payments, compensation and questionable transactions.
Jay Newman, formerly of Elliott Management, has significant asset
recovery and related litigation experience that would be highly
additive to any Board committee seeking to recover misallocated
gains.
- Portfolio Optimization – HC2 lacks any semblance of
discipline or structure when it comes to its “roll the dice”
investment strategy. Any objective evaluation of the Company’s
current portfolio shows a crop of underperforming assets that are
either stagnating or being mismanaged by Mr. Falcone. Fortunately,
our nominees see a clear opportunity to streamline the asset base
through targeted split-offs, spin-offs and tactical divestitures as
assets scale. If elected, our nominees intend to establish true
guardrails and governing principles around the Company’s holdings,
ensuring there is a strict focus on businesses that are able to
generate free cash flow and do not have significant capital
needs.
- Disciplined Deployment of Capital – The misallocation of
capital under Mr. Falcone has cost HC2’s investors a great deal of
value and led the Company down a potentially perilous path. If
elected, our nominees will work to put an end to this value
destruction by returning capital to both creditors and stockholders
(at their option). We would only deploy excess capital toward
opportunistic investments once the Company is stabilized and
stockholders have the option to divest of their shares at a
superior price to today’s valuation.
We firmly believe that our nominees will be excellent stewards
of stockholders’ capital if they are elected to the Board. Their
backgrounds at entities such as Third Point, Elliott Management,
Goldman Sachs, Lazard, Harvard Business School, Ascent Media and
other top institutions serve as a tremendous foundation for board
service at a publicly-traded diversified holding company. In the
days to come, we will be sharing our detailed plan and strategy to
illustrate in great detail how our nominees will work to unlock a
better HC2.
We Urge Stockholders
to Avoid Being Misled by HC2’s Low-Road Campaign and Vote For Our
World-Class Nominees on the GREEN Consent Card
We encourage all stockholders to see through HC2’s low-road
campaign to miscast us as a “hedge fund” and obfuscate key facts
about our engagement to date. In our view, this is nothing more
than a dishonest attempt to distract from HC2’s indefensible record
of losses and value destruction under the control of Mr. Falcone
and his boardroom allies. Upon objectively assessing the Board’s
proposed path forward relative to ours, we believe stockholders
will conclude that our nominees are far more likely to deliver a
better HC2. They are prepared to bring a Fortune 100 mentality,
mindset and outlook to a Board that has been lacking credibility
and has failed to effectively manage the Company’s balance sheet or
provide effective oversight of its Chief Executive Officer.
We urge HC2 stockholders to consent to all
three proposals on the GREEN consent
card and return it in your postage-paid envelope provided.
The consent deadline is May 7,
2020.
Should you have any questions or need
assistance with voting, please contact Saratoga Proxy Consulting
LLC at (888) 368-0379 or (212) 257-1311 or by email at
info@saratogaproxy.com.
PROTECT YOUR INVESTMENT. SIGN, DATE AND
RETURN YOUR FILLED OUT GREEN CONSENT CARD TODAY.
As a reminder, learn more about our case for change and sign up
for updates at www.ABetterHC2.com.
Sincerely, Michael Gorzynski
***
FORWARD-LOOKING STATEMENTS
Any statements contained herein that do not describe historical
facts, including future operations, are neither promises nor
guarantees and may constitute “forward-looking statements” as that
term is defined in the U.S. Private Securities Litigation Reform
Act of 1995. Such forward-looking statements may include words such
as “may,” “might,” “will,” “should,” “expects,” “plans,”
“anticipates,” “believes,” “estimates,” “predicts,” “potential” or
“continue,” the negative of these terms and other comparable
terminology. Any such forward-looking statements contained herein
are based on current assumptions, estimates and expectations, but
are subject to a number of known and unknown risks and significant
business, economic and competitive uncertainties that may cause
actual results to differ materially from expectations. Numerous
factors could cause actual future results to differ materially from
current expectations expressed or implied by such forward-looking
statements, including the risks and other risk factors detailed in
various publicly available documents filed by the Issuer from time
to time with the Securities and Exchange Commission (SEC), which
are available at www.sec.gov, including but not limited to, such
information appearing under the caption “Risk Factors” in Issuer’s
Annual Report on Form 10-K filed with the SEC on March 16, 2020.
Any forward-looking statements should be considered in light of
those risk factors. MG Capital cautions readers not to rely on any
such forward-looking statements, which speak only as of the date
they are made. MG Capital disclaims any intent or obligation to
publicly update or revise any such forward-looking statements to
reflect any change in Issuer expectations or future events,
conditions or circumstances on which any such forward-looking
statements may be based, or that may affect the likelihood that
actual results may differ from those set forth in such
forward-looking statements.
1 Securities and Exchange Commission press release dated August
19, 2013 (link here). 2 Bloomberg; HC2’s holding company debt
relative to its equity market capitalization at the close of
trading on April 3, 2020. 3 HC2 Holdings, Inc., Bloomberg; HC2’s
total corporate expenses for 2019 were approximately $21.9 million.
4 13D filing by Julian D. Singer on April 7, 2020. 5 Bloomberg; TSR
reflects share price and performance up until January 14, 2020,
which is the day before the Percy Rockdale 13D was filed with the
Securities and Exchange Commission. TSR assumes dividends
reinvested. 6 Bloomberg; TSR reflects share price and performance
up until December 31, 2019. 7 Securities and Exchange Commission
press release dated February 28, 2008 (link here). 8 Reuters,
“Bally noteholders back Harbinger restructuring plan,” August 16,
2007 (link here). 9 HC2 Holdings 2019 Proxy Statement.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200407005548/en/
For Investors: Saratoga Proxy Consulting LLC John Ferguson / Joe
Mills, 212-257-1311 jferguson@saratogaproxy.com /
jmills@saratogaproxy.com For Media: Profile Greg Marose / Charlotte
Kiaie, 347-343-2999 gmarose@profileadvisors.com /
ckiaie@profileadvisors.com
HC2 (NYSE:HCHC)
Historical Stock Chart
From Mar 2024 to Apr 2024
HC2 (NYSE:HCHC)
Historical Stock Chart
From Apr 2023 to Apr 2024