NEW YORK (Reuters) – Activist investor Warren Lichtenstein got court approval on Friday to move forward with his controversial plan to convert hard-hit hedge fund Steel Partners II into a listed investment company.
Investors including corporate raider Carl Icahn, fund manager Michael Price, the J. Paul Getty Trust and several college endowments wanted to stop the fund’s conversion and favored an immediate liquidation of the whole fund.
But Delaware Chancery Court Judge William Chandler refused to grant a temporary injunction sought by the group.
“I am unable to conclude plaintiffs will suffer immediate an irreparable harm if the injunction is not granted,” Chandler said in a hearing webcast by Courtroom View Network, exclusive provider to Westlaw, which is a unit of Thomson Reuters.
The ruling paves the way for Lichtenstein, who makes concentrated bets on a few companies, to carry out his plan.
On July 15, investors who want to remain with Lichtenstein will receive units of Steel Partners Holdings LP and some cash, plus quarterly distributions for up to two years.
Those who chose to exit will receive a mix of cash and a pro rata share of the portfolio’s securities. Steel Partners said on Friday it intends to list the investment company by the end of this year.
Chandler rejected a number of objections raised by the dissident investors who said Lichtenstein was locking up investor cash, issued misleading statements and had essentially begun winding down the partnership. Plaintiffs said fund investors would be better served by a court-ordered liquidation of the entire fund.
“We are gratified that the Delaware Court has recognized that the plaintiffs, who are a distinct minority of the fund, have no legal grounds under which to further delay implementation of the revised plan or to force an undefined liquidation of the fund,” Lichtenstein said in a statement.
The litigation continues, though Chandler told lawyers at the hearing the plaintiffs’ lawsuits were unlikely to prevail in trial. Officials from Icahn Associates declined to comment.
The judge’s ruling paves the way for Lichtenstein’s New Year’s Eve proposal to preserve the portfolio and create a vehicle to acquire other companies and assets. During investor meetings, Lichtenstein compared Steel Partners Holdings with the likes of Leucadia National (LUK.N) and Berkshire Hathaway (BRKa.N).
The plan met with stiff resistance from investors who collectively tried to withdraw nearly 40 percent of the assets last year, after Steel Partners plunged by nearly half during the unprecedented market turmoil.
Dissidents said Lichtenstein unfairly denied them access to their cash and instead was forcing them to choose between the lesser of two evils: shares of a closed-end fund that would likely trade at a discount or a pile of hard-to-trade assets.
“It’s a choice between going to a TB (tuberculosis) clinic and a leper colony,” Icahn quipped in court papers.
Ultimately, though, the judge agreed with Steel Partners that Icahn and other investors had no right to demand a total liquidation.
Steel Partners estimated that 36 percent of the fund’s assets could be liquidated quickly, with the remainder invested in hard-to-trade securities and private investments. The fund managed about $1.23 billion of assets as of June 12.
Last week Lichtenstein in a letter said investors owning 38 percent of fund assets favored the conversion plan, while 18 percent favored redemptions.
(Reporting by Joseph A. Giannone; Editing by Richard Chang)