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Falcone Remains HC2 CEO After Gorzynski
Settlement
The founder and CEO of the
miniconglomerate keeps his top spot at the company but concedes two
board positions as part of a settlement with activist Michael
Gorzynski.
By Ronald
Orol
Updated on May 14, 2020, 10:53 AM ET
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Philip Falcone, HC2 CEO |
Ex-Third
Point LLC analyst Michael Gorzynski on Thursday, May
14, settled his change-of-control director contest with HC2
Holdings Inc. (HCHC) in a deal that allows the
miniconglomerate's founder Philip
Falcone to keep his CEO position and while adding two
dissident directors to the board.
The agreement, which was struck shortly after the deadline for votes
in the director battle, installs Gorzynski and fellow dissident,
Kenneth Courtis, a former Goldman,
Sachs & Co. vice chairman, onto HC2’s board.
In addition, two new candidates nominated previously by HC2, Avram
Glazer and Shelly Lombard, will receive director positions in a
settlement that expands the board initially
from six to ten members. At HC2’s annual meeting, scheduled for July
8, the board will drop down to seven members as three Falcone-backed
incumbent directors step down.
The agreement ends one of the most heated director fights of 2020 and
one that came with many twists and turns along the way.
It sets up a divided board, as directors likely have different goals
for the company’s assets. Falcone and Gorzynski are seemingly at odds
over M&A options for HC2's assets, once markets stabilize. The
dissident, who runs MG Capital, wants HC2 to keep its core assets, DBM
Global, Continental General Insurance and American
Natural Gas, while divesting other units and stakes.
Gorzynski may try to push the board into taking a deep dive into
Falcone’s oversight of the company, considering that proxy advisers
Institutional Shareholder Services and Glass Lewis expressed
concerns in recent reports about his oversight at the
company. Glass Lewis had written that the dissident “highlighted valid
concerns” about Falcone’s personal legal matters “in the context of
potential reputational harm to certain of the company’s operating
businesses…” ISS pointed
to “refinancing missteps, questionable accounting decisions and
Falcone's prior litigious history” as reasons to remove him from the
board.
Gorzynski, who had sought to become HC2’s interim CEO, nominated his
candidates through a rarely employed written consent solicitation. The
consent solicitation contest, which did not require an annual meeting
to conclude, comes with rules that make it much harder to get
directors elected.
During a consent solicitation, a campaign must get the backing of a
majority of outstanding shares to get directors elected rather than
the much lower threshold of a majority of voting shares required at an
annual meeting. It's possible that Gorzynski did not obtain the
support of a majority of outstanding shares needed to win. However, it
is likely that he would have fared better with a follow-up contest at
the company’s annual meeting had he followed up a loss in this effort
with a secondary fight. The possibility of a Gorzynski win at the
company’s annual meeting likely acted as leverage in negotiations.
Some board changes made by HC2 in advance of the fight paid off in
terms of helping to preserve Falcone’s position. HC2 announced May
4 that it was adding Lombard, an independent consultant, and Jeffrey
Tudor, founder of Tremson Capital Management LLC, to its board.
However, in the final agreement with MG Capital, Lombard made it to
the board and Tudor was excluded.
In addition, In April, HC2 made a strategic move in defense of Falcone,
by announcing it was installing Lancer Capital LLC’s Glazer, a 5.3%
holder, as board chairman. Glazer was installed as an independent
director but has many connections to
incumbent director Warren Gfeller, CEO Falcone and HC2 that suggest he
isn’t independent.
HC2 retained Jefferies
LLC for financial advice on the agreement. Jefferies,
which is HC2’s largest shareholder with a 7.6% stake, also provided
advice on HC2’s strategic options for its steel construction unit, DBM
Global Inc.
Skadden, Arps,
Slate, Meagher & Flom LLP partner Richard Grossman provided legal
advice to HC2.
Kleinberg, Kaplan, Wolff & Cohen PC partner Christopher Davis and
associate Rebecca Van Derlaske provided legal advice to MG Capital.
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