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Forum Report:
HC2 Shareholder Survey
2019 Survey of HC2 Holdings, Inc. Shareholders
Value enhancement alternatives
Management of favored alternative
Comments presented for the company’s consideration
Shareholder comments for other shareholders
Shareholders of HC2 Holdings, Inc. were invited to report their views of
management alternatives during the week following September 10, 2019.
The
survey research was initiated by HC2 shareholders seeking an understanding
of what strategies other shareholders would support to establish marketplace
valuations of the company’s stock in a range consistent with reported
professional valuations of the company’s subsidiary holdings.
The
survey questionnaire also asked participants to volunteer information that
might be useful in analyzing anonymous responses, about what kind of
portfolio(s) they managed, how many shares they owned, how long they had
owned shares, and whether they had recently increased or decreased their HC2
investment. Participants were also offered an opportunity to present
questions or comments anonymously for the Forum to report for consideration
by HC2’s management or other shareholders.
Value
enhancement alternatives
The
initial issue shareholders were invited to address was to “how much you
believe each of these alternatives would contribute to the value of your HC2
stock,” presenting a list of specified strategies and offering an
opportunity for respondents to write in their own suggestion of an “other”
alternative.
As
shown in the following graph, the highest level of shareholder support was
for the alternative to “[d]efer investments in new ventures until cash flow
from profitable operations has reduced existing debt to manageable levels of
cost and risk,” with 86% of respondents believing that would be effective or
provide some benefit. The next highest level of support was for the similar
alternative of selling some or all subsidiaries to reduce debt, with 81% of
respondents believing that would be effective or provide some benefit.
Support for specific disposition alternatives ranged from 69% to 53%, except
for the strongly opposed sale of the Construction Group which was supported
by only 38% and received the highest level of perceived negative impact by
44% of shareholders. Most significantly, fewer than half of the responding
shareholders thought a continuation of current management strategies would
be effective or at least provide some benefit, and more than a third thought
it would have a negative impact.
It
should be noted that these patterns of support for both deferral of new
venture investments and sales of subsidiaries to reduce debt were much
stronger among respondents reporting ownership of more than 100,000 shares.
Most significantly, more than two thirds of those larger shareholders
reported believing that a continuation of current management strategies
would have a negative impact.
Comments offered by shareholders addressing this question were generally
consistent with their choices of alternatives, as shown in this range of
examples:
■
act
fast
■
bring
in operator to run company properly, stop new projects, significantly cut
G&A
■
liquidate
■
manage
debt as we move into the downturn. rates will be even lower then if more
borrowing is needed
■
management could try to reduce corporate overhead expenses as currently they
are too high (25-30mn per yr) given the tight free cash flow situation
■
Most
of these questions depend on price. So it is tough to say on just a blanket
should we sell this asset, it depends on the sure, sure sell DBM if you can
get 2 billion.. I was unaware there were issues with NY for Continental
■
Something must be done to address staggering debt and excess management comp
■
The debt level is too high given the cash flows of the combined operations.
■
There
are too many assets that are not cash flow positive, and the corporate
overhead costs are too high given the underlying assets of the business
Management of favored alternative
Following the question above about strategy alternatives, participants were
asked “[f]or whichever alternative(s) you consider most likely to be
effective, how do you think the value enhancement process could be most
reliably managed?”
Understandably in the context of support for change, most shareholders
reported that they would have confidence in the management of their favored
alternative if there was at least some change in HC2’s board of directors.
The strongest support, with 68% expressing confidence and only 7% lacking
confidence, was for the relatively safe addition of one or two new board
members to provide fresh views. However, as shown in the graph below,
significantly more shareholders had confidence in a new board than the
number who lacked confidence in that more pivotal change of management.
Consistent with that response, the number of shareholders who lacked
confidence in HC2’s current board and executive management was greater than
the number of shareholders who expressed confidence in them.
As in
their responses to alternative strategies, respondents reporting ownership
of more than 100,000 shares showed much stronger views. More than two thirds
of these larger shareholders expressed both confidence in a replacement of
all or most board members and a lack of confidence in the current executives
and board.
Comments offered by shareholders addressing management included a range of
views shown in these examples:
■
Add
some one from Steel Partners (they own 1,000,000 shares)to your board, they
know how to create value
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Company was highly rated a few years ago as a potential 100x gain over time.
Use successful actions that created your promising future and continue to
build you team for success
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Current management is a disaster and they should be replaced. The Board
should have quit after the say on pay vote and the current board is a
disgrace.
■
I
think the stock price speaks for itself as far as investor confidence in
management.
■
liquidate save 25mm overhead
■
Maybe
you should seek out a really smart activist investor rather than waiting for
them to come find you in a hostile manner. For example reach out to Icahn
and see if he is interested in taking a stake.
■
New
directors without past history with ceo
■
Please
operate with more integrity. DO NOT lie to your shareholders for three years
about “top priority” and then do the opposite; sell assets and use no
proceeds to tackle your investors concerns. Management has been negligent
with leverage at the holding company, they have leveraged the company to
such an extent that it now makes selling assets for a fair price next to
impossible. Global has been for sale almost a year now, potential buyers of
the asset are aware of the high levels of debt and leverage that the holding
company, and are using that to their advantage. We will be forced to unload
the asset at a sub optimal price due to managements negligence with
leverage. It is downright repulsive the way Phil and co. have conducted
themselves since the inception of Hc2 holding. Take zero pay until you
create shareholder value, you have robbed your investors for the past number
of years with exorbitant bonuses for costing your shareholders significant
losses.
■
Some
continuity of management necessary, but fresh eyes valuable.
■
The
Board are all yes-men to Falcone. They need to be replaced
■
The
reports on management that I've read are quite positive. Looking forward, as
long as people with excellent skills and experience are guiding the company,
the pursuit of steady, stable growth should go according to plan.
■
yeah,
fire falcone! no confidence.
Comments presented for the company’s consideration
Responding shareholders were invited to present comments and questions for
HC2 management, as well as suggestions of subjects for future company
reports or conference call presentations, with the assurance that their
responses would be presented to the company with sources identified only as
anonymous participants in the survey. The following reports of all responses
were presented to the company’s chief executive officer on September 18,
2019, the day after the one-week survey was closed:
·
Shareholder Suggestions for Management Consideration
·
Shareholder Questions for Company Management
·
Shareholder Suggestions of Subjects for a Company Report
HC2
management responded to these comments on September 25, 2019, with the
following statement:
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HC2 Holdings, Inc. appreciates the concerns of our investors,
particularly with respect to our balance sheet. De-levering the
holding company remains our top priority. While the sale of Global
Marine is clearly at the forefront of this process, we continue to
evaluate additional paths with our other global portfolio companies.
As we show progress in improving our balance sheet, we believe
investors will be able to see the value we are creating and the
benefits of a diversified portfolio. We remain well-positioned to
take advantage of our diverse hybrid portfolio strategy of solid cash
generating businesses such as Construction, Insurance and meaningful
value creation at Global Marine, Energy, Broadcasting and Life
Sciences. |
On
September 26, 2019, the company also replaced its investor relations website
presentation of a November 2018 “Corporate Overview” with a new “Investor
Presentation” supporting their statement in response to the survey comments.
Shareholder comments for other shareholders
The
questionnaire also invited shareholders to offer comments for consideration
of other HC2 shareholders, with the understanding that responses would be
similarly reported as presented by anonymous participants in the survey. All
of these comments are presented in the following report:
·
Comments Offered for Reporting to Other Shareholders
ttt
This
summary is being distributed to all shareholders who participated in the
survey and requested a report of its results, with thanks for their
contributions of views to benefit other shareholders and the company’s
management. Questions and comments about the survey results are welcomed,
and can be addressed to
hchc@shareholderforum.com.
GL
– September 27, 2019
Gary
Lutin
Chairman, The Shareholder Forum
©The Shareholder Forum, Inc. |
