Billionaire investor Carl Icahn is nearing agreement to buy a stake in a closely held Brazilian iron ore mining company from Phil Falcone’s Harbinger Capital Partners LLC, according to four people familiar with the talks.
Icahn is seeking to buy 14.9 percent of Ferrous Resources Ltd. (FER), three of the people said, asking not to be identified because the discussions are confidential. He intends to pay $1.50 a share, partly in cash, which values the stake at about $180 million, one of the people said.
Harbinger lost 47 percent for investors in its main fund last year as Falcone was forced to cut the value of his $3 billion investment in broadband wireless venture LightSquared Inc. by more than half. The hedge fund has been looking for a buyer for part of its 26 percent Ferrous stake since at least February to help pay down a loan from Jefferies Group Inc.
Icahn is also pursuing a position on the board of Belo Horizonte, Brazil-based Ferrous, according to three of the people.
Keith Schaitkin, general counsel at Icahn Enterprises; Lew Phelps, a spokesman for New York-based Harbinger; and an official at an external public relations firm working for Ferrous declined to comment.
The Harbinger Capital Master Fund, which holds a 19.5 percent stake in Ferrous, valued it at $3.13 a share, or $486 million, documents that describe the Jan. 30 loan from Jefferies show. Falcone owes about $200 million to Harbinger lenders by Oct. 31, including a $47.5 million payment due at the end of this month.
The sale to Icahn at $1.50 a share is a third of what Falcone paid for each in Ferrous’s last round of fundraising in 2008, when he bought part of his stake, one of the people said. Harbinger acquired about $150 million worth of shares at $4.50 apiece in that transaction, the person said.
Falcone, 49, who founded Harbinger in 2001, bet millions in 2006 that securities cobbled together from subprime mortgages would collapse, making the fund $11 billion in 2007. In 2008, it was one of the world’s most successful hedge funds, with assets of $26 billion. Today, Harbinger manages about $4 billion.
Icahn, 76, along with investors David Tepper and Andrew Beal, bought $300 million of LightSquared debt sold by Farallon Capital Management LLC in December. The move may help give Icahn control of Reston, Virginia-based LightSquared’s spectrum for less than what Falcone originally paid.
LightSquared, which had planned to build a high-speed data network for as many as 260 million users, is struggling to survive after the Federal Communications Commission’s decision to block the service because of potential signal interference with global-positioning systems.
Falcone said earlier this month he would consider putting LightSquared into voluntary bankruptcy.
“The rationale behind a voluntary filing is to complete the vision, to complete the plan to build the network and protect the company from the creditors who are more interested in a quick flip,” he said in an interview.
LightSquared creditors, including Icahn, Tepper and Beal, agreed to give Falcone a waiver not to put the company into technical default after the FCC said it planned to revoke LightSquared’s license. Falcone has a deadline of April 30 to revisit that waiver with his creditors.
Icahn is seeking to gain control of CVR Energy Inc. (CVI:US) and said on April 3 that more than half of the company’s shares were tendered in response to his unsolicited $2.6 billion offer. Sugar Land, Texas-based CVR said Icahn can’t buy the shares now because of a restriction that limits individuals from acquiring the company without board approval.
Ferrous has been trying to find a strategic partner to help finance its Brazilian projects since at least 2009, having shelved plans in June 2010 for a $400 million initial public offering in London because of fluctuating equity markets.
In December, Ferrous proposed a $2.3 billion takeover of rival MMX Mineracao (MMXM3) & Metalicos SA, the Rio de Janeiro-based iron-ore producer controlled by Brazilian billionaire Eike Batista, according to a letter detailing the plan obtained by Bloomberg News. The companies held “several discussions” on a merger during the past 18 months, the letter shows. MMX said on Jan. 19 that it’s not interested in a Ferrous merger.
Ferrous is competing with miners including Anglo American Plc (AAL) and MMX in expanding iron-ore projects in Brazil, the world’s second-largest exporter of the steel-making ingredient, to meet rising Chinese demand. The company produced its first ore last year and has six projects in the largest iron ore producing region in Brazil, Minas Gerais state.
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