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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.

 
     

Forum reference:

Professionals' observation of exceptional support to replace all members of board

 

The article below from The Deal, which has been a private subscription service of Euromoney Institutional Investor PLC since the beginning of 2019, is provided to Forum participants with permission of the editor.

For the publication's earlier report of another proxy adviser's recommendations noted in the article below. see

 

Source: The Deal, April 30, 2020 article

 

Ronald Orol, Senior Editor

 

Glass Lewis Backs Dissident in HC2 Board Battle

The proxy adviser recommended shareholders support ex-Third Point analyst Michael Gorzynski’s effort to replace the company’s entire six-person board and oust founder and CEO Philip Falcone.

By Ronald Orol

Updated on April 30, 2020, 10:59 AM ET

Philip Falcone, HC2 CEO

 

Proxy adviser Glass, Lewis & Co. LLC has urged shareholders of HC2 Holdings Inc. (HCHC) to back a complete board takeover effort by ex-Third Point LLC analyst Michael Gorzynski, in a major blow to the miniconglomerate’s founder and CEO Philip Falcone. 

The recommendation, published Wednesday, April 29, and obtained by The Deal Thursday, represents a second consecutive negative recommendation for Falcone. Institutional Shareholder Services Inc. earlier this month urged investors to back three of six dissident directors. Both reports, however, urge shareholders to vote Falcone off of HC2's board.

The insurgent manager wants Falcone removed from his role as CEO. It also wants the company to focus on its core assets, including construction unit DBM Global and insurance outfits Continental Insurance Group and Continental General Insurance Co., while divesting other units. In addition, Gorzynski wants to become interim CEO in Falcone’s stead. HC2 has business operations in construction, marine services, insurance and other sectors.

“After having reviewed the background and qualifications of the dissident nominees, we are of the opinion that the dissident has presented a compelling slate of qualified independent nominees with experience," Glass Lewis said in its report.

Gorzynski, manager of MG Capital Management LP, has an unconventional approach to electing his dissident director candidates. Instead of waiting for an annual meeting, the activist investor is employing a written consent solicitation director battle. Consents for incumbent and dissident director candidates are due to be tallied and delivered to the company’s proxy solicitor by May 12.

The two major proxy advisers differ as to whether Gorzynski should get to install himself as interim CEO following the director election. Glass Lewis appeared supportive of Gorzynski’s commitment not to receive pay if he were appointed interim CEO, as the company would also conduct a hunt for a full-time replacement through an external search process. However, ISS suggested that shareholders may have some reservations regarding Gorzynski’s ability as interim CEO “given his lack of experience as a public company executive or director.”

Glass Lewis focused much of its report in support of Gorzynski’s plan to cut costs, noting that he plans to reduce executive compensation and implement a 50% pay cut in director fees, with possible additional cuts to follow after a review of the businesses.

Both ISS and Glass Lewis were critical of Falcone. Glass Lewis said that the dissident has “highlighted valid concerns” about Falcone’s personal legal matters “in the context of potential reputational harm to certain of the company’s operating businesses, as well as efforts by a majority of the directors in prior years to marginalize the company's common shareholders.”

ISS pointed to “refinancing missteps, questionable accounting decisions and Falcone's prior litigious history” as reasons to remove him from the board.

In February, a lawsuit filed by Melody Business Financial LLC with the New York State Supreme Court in Manhattan alleged Falcone and other affiliates defaulted on obligations to repay loans between 2013 and 2017 and inappropriately sold some pledged collateral including artworks produced by Edgar Degas and Andy Warhol. Melody seeks more than $65.8 million, and a court last year reportedly ordered HC2 to hold back some of Falcone’s wages to satisfy unpaid obligations after he was ordered to pay unpaid taxes in New York.

The City of New York recently obtained a levy to collect the $2.5 million unpaid balance of its $2.7 million judgment against Falcone. It is unclear whether Falcone's stake in HC2 would be affected by the lawsuits with creditors such as Melody.

A Feb. 14 13D filing from Falcone shows the HC2 CEO owns 17% of the company, or about 9 million shares. According to the filing, Falcone owns 1.3 million shares of which he "he has the sole power to vote or dispose." Beyond those shares, he has options that could bring his total to closer to 17% of the company's stock.

Even with the recommendations, MG Capital will have a tough time convincing some big shareholders not to back Falcone.

Seeking to appease disgruntled investors, HC2 announced April 21 it was installing a new director, Lancer Capital LLC’s Avram Glazer, as board chairman. Lancer owns a 5.3% HC2 stake. HC2’s interim chairman, Warren Gfeller, has described Glazer as an “independent and high-quality nominee.” However, Glazer has connections to Gfeller, Falcone and HC2 that suggest he isn’t independent. 

In addition, another activist, Julian Singer, a 6.4% holder, reported earlier this month that he supported Glazer’s nomination and that he wouldn’t back MG Capital’s campaign.

 

 

© 2020 The Deal.

 

 

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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