Harbinger Capital Management founder Philip Falcone is under fire over his bid to acquire the minority of steel-fabricator Schuff International that he doesn’t already own.
Falcone’s HC2 Holdings vehicle in May acquired a 65% stake in Schuff from its controlling family. The company has since increased that to 70%—and wants to get it to 100%. So it has made a tender offer for the remaining shares.
The only problem is, those over-the-counter shares are now trading for more than the $31.50 HC2 paid for them and wants to pay for the rest. But critics say Falcone is taking unfair advantage of the lax disclosure rules that OTC stocks are subject to. And at least three class-action law firms are planning lawsuits.
“Most investors don’t have a clue what’s going on,” Randy Katz, a lawyer at Baker & Hostetler, told the New York Post. “It’s an enterprise ripe for [Falcone] to come in and take over without paying full value.” Katz said OTC investors frequently don’t know they have the right to reject a tender offer.
“We are not forcing anyone to do anything,” a source close to HC2 told the Post. “They can either tender or not.”
That is, until HC2’s stake hits 90%. Then the company can force the remaining shareholders to sell at a price similar to that paid in the tender offer.