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NEW YORK, NY -- (Marketwired) -- 06/02/15 -- HC2 Holdings, Inc.
("HC2") (NYSE MKT: HCHC) announced today that it has sent a letter
to MCG Capital Corporation ("MCGC") addressing inaccurate comments
made by MCGC and highlighting their responsibility to maximize
value for stockholders. HC2 has also modified certain terms that
it believes makes the proposed offer even more attractive to MCGC
stockholders. The following is a copy of the letter sent to MCGC's
Board of Directors by HC2 regarding its offer.
June 2, 2015
Board of Directors
MCG Capital Corporation
1001 19th Street North, 10th Floor
Arlington, Virginia 22209
Attention: Richard W. Neu, Chairman of the Board
Ladies and Gentlemen:
We were surprised and disappointed at the conclusion you reached
in evaluating our May 19th proposal to acquire
MCG Capital Corporation ("MCG") for $5.25 per share.
We believe you should give your stockholders the benefit of
evaluating HC2 and our proposal to acquire MCG with accurate,
complete and up-to-date information. To that end, we question why
neither MCG nor its advisors have made any effort to speak with
me, my counsel, HC2 management or HC2's advisors to get their
facts correct.
Separately, let me address certain of the questions and issues you
have raised regarding the risks associated with pursuing HC2's
economically superior transaction instead of your pending
transaction with PennantPark Floating Rate Capital Ltd. ("PFLT")
so that there can be no doubt that the HC2 transaction is superior
to the PFLT transaction and does not expose MCG stockholders to
unnecessary risks to realize that value:
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You
erroneously state that HC2's proposal requires SEC clearance.
That is simply untrue. Just like the PFLT transaction, the HC2
transaction requires stockholder approval and completion of a
registration statement. HC2 is confident that it can deliver
voting commitments to MCG from the percentage of its
stockholders necessary to approve the issuance of HC2 common
stock to MCG stockholders prior to the execution of a definitive
merger agreement. However, to further assuage any concern you
may have, HC2 will reimburse MCG in respect of the $7 million
fee payable to PFLT in the event HC2 stockholder approval is not
obtained or HC2 cannot complete its registration statement.
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You
suggest that SEC no-action relief may be required in order for
HC2 to acquire MCG based on nothing more than a theory with no
basis in reality. You also erroneously suggest that HC2 may be
an investment company -- this is something that we regularly
monitor and, if you had taken the time to ask, we would have
provided you with our analysis so that you could conclude that
HC2 is not an investment company.
-
HC2 is not
seeking to operate MCG as an investment adviser and, as you well
know, our draft Merger Agreement contemplates that MCG will
cease to be a BDC immediately prior to closing -- all this
requires is the filing of a Form N-54C with the SEC that is
effective immediately upon filing.
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MCG chose
to enter into a Merger Agreement requiring it to pay PFLT a $7
million fee to accept a superior proposal. Our proposal offering
your stockholders $5.25 per share is, in our view, plainly
superior to PFLT's $4.75 per share transaction and nothing
obligates HC2 to pay the $7 million fee to PFLT on MCG's behalf
or causes our $5.25 per share offer to acquire MCG to not be
superior unless we pay that fee on MCG's behalf. Nonetheless,
HC2 will reimburse MCG in the amount of $7 million in the
circumstances described above or in the event it breaches its
covenants in the merger agreement between MCG and HC2 and such
breaches result in a termination of the merger agreement by MCG.
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HC2 is
hereby offering to expand the customary bilateral collar from
15% to 20% and to permit MCG to terminate the Merger Agreement
with HC2 at no cost to MCG in the event the common stock price
of HC2 (calculated on the basis of a 30-day VWAP) declines by
30% or more. These protections should address any concerns of
the MCG board of Directors about changes in the value of the HC2
common stock, including due to the impact on HC2's stock price
of any acquisitions or stock issuances HC2 may undertake.
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HC2 will
commit not to pay any dividends prior to the consummation of the
acquisition of MCG other than those required by the terms of its
existing preferred stock instruments. HC2 will also commit not
to modify its compensation practices or to commence or settle
material claims or proceedings during the pendency of its
transaction to acquire MCG. It also must be noted that, unlike
PFLT, HC2 is internally managed and its stockholders do not bear
expenses associated with paying a third party manager.
-
You have
been critical of HC2's stock for its "volatility", but you have
failed to measure the stock from a performance-based
perspective. The reality is that total and annualized returns of
HC2 stock since I became President and Chief Executive Officer
of the company are 267.9% and 154%, respectively. Additionally,
during my tenure at Harbinger Group, total and annualized
returns were 91.7% and 13.9%, respectively. By comparison,
PFLT's total returns for the last 24 months and 12 months
through June 1 (based on Bloomberg data) are 12.2% and 8.7%
respectively.
-
You
criticize HC2's executive compensation policies but we would
like to set the record straight. You failed to mention that a
large portion of HC2's executive compensation is comprised of
grants of restricted stock, which vest over a number of years,
instead of up-front cash grants. Further, you have compared
HC2's 2014 executive compensation to that of PFLT, but have
neglected to mention that when HC2 paid $26.1 million in
compensation, it also had returns of 195.8%, whereas PFLT paid
approximately $8 million in advisory and administrative fees
when it had returns of only 8.1% and just $30.4 million in
revenue during the same period.
It seems clear to us that you are bound and determined to defend
your pending transaction with PFLT at all costs, even if it means
depriving your stockholders of an economically superior
transaction. We note that of the two MCG directors who are slated
to join the Board of PFLT, one has been a board member at MCG
since its initial public offering at a price of $17 per share and
the other joined the MCG Board in 2007 when its stock price was
$11.61. Ongoing Board roles at PFLT for Messrs. O'Keefe and Neu do
not benefit MCG stockholders who are being asked to sell MCG at
such a significant discount to those price levels. As you know,
however, it is your responsibility to maximize value for the
benefit of the MCG stockholders and, in our view, this
necessitates supporting the offer from HC2 that, at a price of
$5.25 per share, is approximately 10% higher than the pending PFLT
transaction.
Sincerely,
Philip A. Falcone
Chairman, President and Chief Executive Officer
HC2 Holdings, Inc.
ADDITIONAL INFORMATION
This communication does not constitute an offer to buy or
solicitation of an offer to sell any securities. This
communication relates to a business combination transaction with
MCGC proposed by HC2, which may become the subject of a
registration statement filed with the U.S. Securities and Exchange
Commission ("SEC"). This material is not a substitute for the
proxy statement/prospectus HC2 would file with the SEC regarding
the proposed transaction if a negotiated transaction is agreed or
for any other document which HC2 may file with the SEC and send to
HC2's or MCGC's stockholders in connection with the proposed
transaction. INVESTORS AND SECURITY HOLDERS OF HC2 AND MCGC ARE
URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND OTHER DOCUMENTS
FILED WITH THE SEC CAREFULLY IN THEIR ENTIRETY WHEN THEY BECOME
AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT
THE PROPOSED TRANSACTION. Investors and security holders will be
able to obtain free copies of these documents (if and when
available) and other documents filed with the SEC by HC2 through
the web site maintained by the SEC at
http://www.sec.gov.
CERTAIN INFORMATION REGARDING PARTICIPANTS
HC2 and certain of its respective directors and executive officers
may be deemed to be participants in any solicitation with respect
to the proposed transaction under the rules of the SEC. Security
holders may obtain information regarding the names, affiliations
and interests of HC2 directors and executive officers in HC2's
Annual Report on Form 10-K for the year ended December 31, 2014,
which was filed with the SEC on March 16, 2015, and its proxy
statement for the 2015 Annual Meeting, which was filed with the
SEC on April 30, 2015. These documents can be obtained free of
charge from the sources indicated above. Additional information
regarding the interests of these participants in the proxy
solicitation and a description of their direct and indirect
interests, by security holdings or otherwise, will also be
included in any proxy statement and other relevant materials to be
filed with the SEC when they become available.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This release contains, and certain oral statements made by our
representatives from time to time, may contain "forward-looking
statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Such statements are based on
current expectations, and are not strictly historical statements.
In some cases, you can identify forward-looking statements by
terminology such as "if," "may," "should," "believe,"
"anticipate," "future," "forward," "potential," "estimate,"
"opportunity," "goal," "objective," "growth," "outcome," "could,"
"expect," "intend," "plan," "strategy," "provide," "commitment,"
"result," "seek," "pursue," "ongoing," "include" or in the
negative of such terms or comparable terminology. These
forward-looking statements inherently involve certain risks and
uncertainties and are not guarantees of performance or results, or
of the creation of shareholder value, although they are based on
our current plans or assessments which we believe to be reasonable
as of the date hereof, including without limitation expectations
regarding our proposal to acquire MCGC. Factors or risks that
could cause our actual results to differ materially from the
results are more fully described in our most recent annual report,
quarterly reports or other filings with the Securities and
Exchange Commission, which are available through our website at
http://www.hc2.com/. Such factors and risks that relate
to the proposed transaction include the risk that MCGC may not
accept our proposal or negotiate with us; the risk that we may not
be able to enter into a definitive agreement relating to the
proposed transaction; the risk that we may not obtain regulatory
approval of the transactions on the proposed terms and anticipated
schedule; the risk that the parties may not be able to satisfy the
conditions to closing of the transactions; the risk that the
transactions may not be completed in the time frame expected by
the parties or at all; and our failure, if the transactions are
completed, to achieve the expected benefits of such transactions.
Other unknown or unpredictable factors could also affect our
business, financial condition and results. Although we believe
that the expectations reflected in the forward-looking statements
are reasonable, there can be no assurance that any of the
estimated or projected results will be realized. You should not
place undue reliance on these forward-looking statements, which
apply only as of the date hereof. Subsequent events and
developments may cause our views to change. While we may elect to
update these forward-looking statements at some point in the
future, we specifically disclaim any obligation to do so.
ABOUT HC2
HC2 Holdings, Inc. is a publicly traded (NYSE MKT: HCHC),
diversified holding company, which seeks to acquire and grow
attractive businesses that generate sustainable free cash flow.
HC2 has a diverse array of operating subsidiaries, each with its
own dedicated management team, across a broad set of industries,
including, but not limited to, telecom/infrastructure, large-scale
U.S. construction, energy, subsea services and life sciences. HC2
seeks opportunities that generate attractive returns and
significant cash flow in order to maximize value for all
stakeholders. Currently, HC2's largest operating subsidiaries are
Schuff, a leading structural steel fabricator in the United
States, and Global Marine, a leading global offshore engineering
company focused on subsea cable installation and maintenance.
For More Information on HC2 Holdings, Inc., Please Contact:
Ashleigh Douglas
ir@HC2.com
212-339-5875
Source: HC2 Holdings, Inc. |
