April 23, 2020 / 11:41 PM / a month ago

Proxy adviser ISS backs three of six MG Capital nominees at HC2: report

BOSTON (Reuters) - Proxy adviser Institutional Shareholder Services Inc (ISS) said on Thursday that HC2 Holdings Inc (HCHC.N) shareholders should vote for the election of three of activist investor MG Capital’s six director nominees and not re-elect Chief Executive Philip Falcone to the board.

ISS backed MG Capital nominees George Brokaw, Kenneth Courtis, and Jay Newman saying their finance and investment banking expertise “would significantly enhance the board’s knowledge and capabilities,” according to portions of a report seen by Reuters.

ISS also said shareholders should vote to remove Falcone, a former hedge fund manager turned corporate executive, lead independent director Wayne Barr, and Robert Leffler.

MG Capital is running a consent solicitation to replace the entire board. ISS “validated our well-documented concerns about the current board, Philip Falcone and his ability to run HC2,” MG’s founder Michael Gorzynski said.

“We are confident stockholders will reach the conclusion that HC2’s highly qualified board possesses the experience and expertise necessary to successfully execute HC2’s strategic plan,” the company said, adding it was pleased that ISS did not back Gorzynski.

MG Capital said it wanted to cut the company’s annual costs and it wants to refocus HC2’s core holdings.

“Given the board’s failure to properly oversee the CEO as his capital structure mismanagement, reputation, and compensation continued to drive down the value of the stock, a change at the board level is warranted,” the report said.

HC2 has a market capitalization of $128 million and its stock price closed up 13.58% at $2.76 on Thursday.

The recommendation, which guides how many investors will vote, says MG’s nominees should have a substantial number of board seats but not a majority.

Gorzynski has been pushing for months to remove Falcone from his positions. Falcone is a former hedge fund manager whose bet against the overheated housing market earned his fund Harbinger Capital a 116% return in 2007.

ISS said it might be hard for the company to flourish with Falcone at the helm.

Earlier this year, Falcone was sued for more than $65.8 million for allegedly defaulting on loans and had his assets frozen for failing to pay lawyers. Last year HC2 was ordered by a court to withhold some of Falcone’s wages to satisfy unpaid obligations.

HC2 has businesses in construction, marine services and several other sectors.

Reporting by Svea Herbst-Bayliss; Editing by Sandra Maler and Diane Craft

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