BOSTON (Reuters) - Proxy adviser Glass Lewis on Wednesday backed activist investor MG Capital by recommending that HC2 Holdings (HCHC.N) shareholders replace all board members with the investment firm’s founder Michael Gorzynski and five other nominees.
The backing, a rebuke of Philip Falcone, a former hedge fund manager who is now HC2’s chief executive, is noteworthy as proxy advisers rarely recommend dissidents be awarded a majority of board seats.
Glass Lewis has also said it does not like recommending people directly associated with the dissident, such as a founder or a partner.
In contrast, Glass Lewis’ larger rival Institutional Shareholder Services’ (ISS) recommended shareholders vote for three of MG Capital’s candidates and not re-elect Falcone.
“The dissident has made a sufficiently compelling case to warrant supporting its proposed overhaul of the board,” the Glass Lewis report said.
“In our view, the dissident has clearly highlighted a number of key concerns that we believe a wholly refreshed board can better address.”
In MG Capital’s first activist campaign, Gorzynski has called Falcone’s tenure as CEO a “disaster for shareholders” and criticized the former billionaire’s handpicked board for poor governance, conflicts of interest, and missing regulatory issues.
Gorzynski, who once worked for Daniel Loeb’s hedge fund Third Point, is seeking to cut the company’s annual costs and refocus on HC2’s core holdings.
HC2, with a market value of some $132 million, has businesses in construction, marine services and several other sectors.
Glass Lewis said the board allowed “management to embark on what appears to us to have been a leveraged acquisition strategy that has largely generated below-market returns.”
HC2 did not have an immediate comment.
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. A lawyer representing Falcone said the suit has no merit and that his client plans to fight it.
Last year HC2 was ordered by a court to withhold some of Falcone’s wages to satisfy unpaid obligations.
In addition to Gorzynski, Glass Lewis recommended shareholders vote for George Brokaw, Kenneth Courtis, Jay Newman, Robin Greenwood and Liesl Hickey. Only Gorzynski works for MG Capital.
The vote is due to take place on May 7.
MG Capital’s campaign became public earlier this year and HC2’s stock price has climbed 18% for the year to date.
Reporting by Svea Herbst-Bayliss; Editing by Edwina Gibbs