Steel Partners says Icahn fights on in Caymans

NEW YORK, July 16 (Reuters) - Carl Icahn and other investors who failed to block Steel Partners' plan to convert a hedge fund into a listed partnership in Delaware court, continue to fight the plan in the Cayman Islands, Steel Partners said on Thursday.

The New York-based fund manager announced it completed the controversial merger of Steel Partners II into a pink sheets portfolio company, WebFinancial. Yet a spokesman acknowledged that the deal, which will create an exchange-listed investment partnership later this year, is only partially consummated.

Steel's legal victory in Delaware lets it move forward with transferring assets from the U.S. onshore feeder fund, and start redeeming investors who want to withdraw. Steel's Cayman-based offshore feeder is still subject to litigation.

"While investors who are limited partners of the Steel Partners II's onshore feeder were redeemed yesterday and will receive their redemption proceeds, unfortunately, the directors of the offshore feeder are not able to redeem the shareholders of that feeder at present," Steel said in a statement,

Two petitions have been filed against winding up of the offshore fund, a minority of the $1.25 billion fund, including one filed by a firm affiliated with Icahn Associates.

Icahn Associates officials could not be reached immediately for comment.

Steel Partners said 64 percent of the fund's investors ultimately chose to exchange their interests for common units in Steel Partners Holdings LP, which will be listed "as soon as possible."

Investors who elected to redeem their interests, or did not make an election, will receive a pro rata distribution of Steel's portfolio securities and some cash.

Icahn and other investors early this year sued Steel Partners to stop what they contended was unlawful effort to deny them access to their cash and force them into a closed-end investment fund or else receive a basket of hard-to-trade securities.

A Delaware state court rejected those arguments in a hearing last month, and on Tuesday the state's Supreme Court refused to hear an appeal. (Reporting by Joseph A. Giannone; Editing by Tim Dobbyn)