By hedge fund manager standards, Harbinger Capital
Partners Phil Falcone and his wife have been pretty high
Like John Paulson, he became a billionaire several years ago
by betting early that the sub-prime mortgage market would
collapse. He has taken activist positions with a number of
well-known companies, including The New York Times.
And earlier this year, Falcone, who managed $8 billion in
his hedge funds at year-end, was celebrated for his ambitious
plan to develop 4-G technology after buying SkyTerra
We also know he owns 40 percent of the Minnesota wild hockey
team, bought the townhouse once owned by former Penthouse
Magazine publisher Bob Guccione, and, along with his wife, were
sued for sexual harassment by a former employee.
However, so far he has been able to keep one curious
endeavor pretty quiet Harbinger Group. What is Harbinger
Group? It is a shell corporation that is traded on the New York
Stock Exchange under the ticker HRG. Its chairman and CEO is
Falcone, who gained control of the company in June 2009 after
buying 52 percent of the shares. In other words, anyone
including non-accredited investors can invest with
Harbinger Group actually used to operate under the name
Zapata Corp., which was controlled by one-time investor and
corporate raider Malcolm Glazer, who owns the Tampa Bay
Buccaneers in the National football League and the celebrated
British soccer team, Manchester United Football Club.
The company was reincorporated as Harbinger Group in
December 2009. The Rochester, N.Y. holding company currently
has about $151.9 million in cash and cash equivalents. It owns
about 98 percent of Zap.Com Corp., a Bulletin Board traded
company whose stock is priced at $0.07 but rarely trades.
According to its most recent 10-K filing, Harbinger
Groups principal focus is to acquire other businesses. It
said targets could be in any industry, but most likely in the
U.S., although it did not rule out non-U.S. companies.
This is pretty shrewd. Harbinger Group provides Falcone
additional access to capital. Harbinger Group says in public
documents it plans to pay for the acquisitions using its cash,
debt or equity securities or a combination. It also said it may
raise additional capital through the issuance of equity or debt
securities, including preferred stock. We believe that
our status as a public entity and potential access to the
public equity markets may give us a competitive advantage over
privately-held entities with a similar business objective to
acquire certain target businesses on favorable terms, it
says in the filing.
Interestingly, the day after the December 2009
reincorporation Francis T. McCarron was appointed as Harbinger
Groups Chief Financial Officer. From 2001 to 2007, he was
the Chief Financial Officer of Triarc Cos., which was renamed
Wendys/Arbys Group, Inc. in 2008, working under
legendary corporate acquisitor Nelson Peltz.
Falcone refused to discuss Harbinger Groups plans or
The stock, most recently priced at $6.68 per share, hardly
trades, with daily volume generally ranging below 26,000
shares. Its market cap is currently $129 million. However, it
has attracted some interesting investors, including its largest
holder, Royce Capital, founded by Chuck Royce. He did not
respond to my calls.
James C. Shircliff, CEO and CIO of Louisville, Ky.-based
River Road Asset Management, Harbingers second largest
shareholder, says he was drawn to the stock when it was
controlled by the Glazers. The $4 billion in assets value
manager concedes he has no details about Falcones
specific plans, but adds, We like the possibility of what
this could end up becoming.
He calls it a risk-free investment, given that the stock
trades at a 15 percent discount to its cash. Shircliff adds:
Were patient. There is no downside.
Hey, for less than $7 a share, anyone can invest with
Falcone through what is essentially a call option on his future
wheeling and dealing.
Taub, who has covered the hedge fund industry for 30 years, is
a contributing editor to Institutional Investor and Absolute Return-Alpha