Richard Handler’s Leucadia National Corp. (LUK:US) more than doubled its bet on Philip Falcone’s Harbinger Group Inc. after the value of an earlier investment jumped.
Leucadia agreed to buy 23 million preferred securities from Falcone’s hedge funds for $253 million, the firms said yesterday. That adds to Leucadia’s purchase last year of common stock that jumped more than 50 percent in value to $244 million by yesterday’s close. Harbinger Group owns businesses from consumer goods to insurance.
Falcone, 51, is focused on building his publicly traded Harbinger Group after reaching a settlement with U.S. regulators that bars him from the hedge-fund industry. His Harbinger Capital Partners hedge funds are working to meet redemption requests as part of the August accord with the Securities and Exchange Commission.
Falcone said in the statement that he’s pleased with the investment and called the two firms “a great fit.”
The preferred securities are convertible to common stock in Harbinger Group (HRG:US) provided the deal is approved by insurance regulators, Leucadia said in a filing. Once the new stake converts to stock, Leucadia’s average cost per share for its holding would be 25 percent below Harbinger Group’s $13.07 closing price yesterday.
Assuming certain other securities also are converted, Leucadia will hold a 20 percent stake, according to the filing. The firm pledged not to amass more than 27.5 percent of the voting rights for two years without Harbinger Group’s approval.
Leucadia agreed in 2012 to buy Jefferies Group LLC in a $3.2 billion deal that made 52-year-old Handler, who was running the investment bank, chief executive officer of the combined company. New York-based Leucadia’s other businesses include a beef processor, a timber company and a commercial-mortgage joint venture with Warren Buffett’s Berkshire Hathaway Inc. (A:US)
As part of yesterday’s agreement, Leucadia Chairman Joseph Steinberg and Vice Chairman Andrew Whittaker are expected to join Harbinger Group’s board, according to the statement. Whittaker oversaw the initial investment, Handler and Leucadia President Brian Friedman wrote in a letter to shareholders posted last month.
The stake “is a classic example of how a unique relationship and extensive existing knowledge can lead to an appealing entry point in a public holding company at a price we find attractive,” they wrote.
Leucadia bought a then-13 percent common-equity stake in Harbinger Group from Falcone’s funds in September, paying $8.50 a share, 16 percent below the closing price the day the sale was announced. Leucadia held 18.63 million common shares at the end of December, according to a regulatory filing last month.
Falcone is CEO of Harbinger Group, which has majority stakes in insurer Fidelity & Guaranty Life and Spectrum Brands Holdings Inc. (SPB:US), the maker of Rayovac batteries and George Foreman grills. The New York-based firm also controls a middle-market lender.
Leucadia fell (LUK:US) 0.8 percent to $26.46 at 11:44 a.m. in New York, and Harbinger slipped 0.3 percent. Handler’s firm has retreated 6.6 percent this year.
Falcone, who became a billionaire by betting against the U.S. housing market in 2006, was accused by the SEC of improperly borrowing money from his funds to pay personal taxes. He also admitted to giving preferential treatment to some clients when returning their money.
After the SEC agreement, which included $18 million in sanctions against Falcone and his firm, the executive was banned by New York regulators from being an officer or director of Fidelity & Guaranty Life (FGL:US) for seven years.
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