Steel’s Controversial Conversion Moves Forward

Jul 20 2009 | 10:37am ET

New York hedge fund Steel Partners has partially completed the controversial conversion of its flagship hedge fund into a publicly-listed partnership, but acknowledged that the plan’s opponents have yet to raise the white flag.

Steel said that it has begun distributing shares of Steel Partners Holdings to the 64% of Steel Partners II investors who have chosen to remain in the fund. The redeeming investors will get a pro-rata distribution in-kind of the portfolio securities and some cash.

But Steel, which said it plans to list SPH “as soon as possible,” acknowledged that the conversion only covers the on-shore version of Steel Partners II. Despite losing their bid for an appeal of a Delaware court decision last month paving the way for Steel to implement its plans, dissident investors are continuing their fight in the Cayman Islands, where Steel Partners II’s offshore fund is domiciled.

Carl Icahn didn’t become a billionaire by giving in easily: He and his allies continue to pursue a pair of petitions seeking the liquidation of the offshore fund in the Caymans.

Icahn has called the choice between become a shareholder of the publicly-listed Steel fund or accepting in-kind redemptions one “between going to a TB clinic and a leper colony.”

“We welcome the 64% of the Steel Partners II investors that chose to continue to invest with us as common unit holders of Steel Partners Holdings,” Steel chief Warren Lichtenstein said. “While we find some small vindication in the recent Delaware Court decisions denying Plaintiffs’ request for a preliminary injunction, it is regrettable that it resulted in needless costs and delays for our investors. These costs are not only in the amount of money spent defending against the Plaintiffs, but also in the lost opportunities from which we might all have otherwise benefited.”

While nearly two-thirds of Steel’s investors have decided to stick with the firm, at least some are doing so unhappily. Only 38% of investors were in favor of the plan a month ago, with 18% voting for the in-kind distribution and fully one-third demanding the immediate liquidation of the portfolio.


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