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.
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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:
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:
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 [email protected].
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
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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.
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