MCG Capital Corporation (MCGC) reaffirmed its recommendation in favor of the previously announced merger with PennantPark Floating Rate Capital (PFLT), after reviewing a counter-offer from HC2 Holdings (HCHC), a BDC run by former hedge fund manager Phil Falcone. Falcone founded hedge fund Harbinger Capital Management, which he stepped down from last year.
The acquisition of MCGC by PFLT in a stock and cash transaction is valued at about $175 million, or approximately $4.75 per MCGC common share at closing in late April, representing a 15.8 percent premium to MCGC’s closing stock price on April 28.
HC2 Holdings had sent a letter to MCG Capital Corporation proposing the companies engage in discussions regarding a counter-offer from HC2 to acquire MCG. HC2's proposal was to buy 100 percent MCGC common stock on a fully-diluted basis in a cash and stock transaction, in which stockholders of MCGC would receive $5.25 for each share of MCGC common stock outstanding.
The offer consisted of an amount of HC2 common stock valued at $4.75 and $0.50 in cash. “HC2 has delivered what it believes to be a superior offer to the PennantPark Transaction” said a statement from HC2. The letter came to the PennantPark board yesterday (18 May) from Falcone, chairman, president and chief executive of HC2 Holdings.
Falcone previously ran his own hedge fund and made billions betting against the housing market, but later lost money on a series of bad bets including a failed wireless network. He stepped down from Harbinger late last year to start the BDC, according to DealBook. Falcone was barred from working in the securities industry for at least five years, as part of a settlement with the SEC regarding hedge fund violations, though the settlement does not restrict him from managing a listed company.
PennantPark was founded in 2007 by former Apollo Investment Management executive Art Penn. Penn told PDI that the MCG purchase, most of which is made up of cash at this point, will help PFLT double in size, write larger checks and work with bigger sponsors and borrowers. Penn is in discussions with five or six people from the MCG staff about bringing them on board to PennantPark. Since the firm’s founding, PennantPark has deployed about $4.3 billion in deals to 350 companies (with 145 sponsors), according to its website. The firm manages two BDCs: the PFLT vehicle and the Pennant Park Investment Corporation (PNNT), as well as private funds.