Icahn Making Sure Rust Really Sticks to Steel

As previously reported, Steel Partners is trying to stick it to investors by unilaterally deciding to do a reverse merger something or another, ultimately to prevent investors from redeeming in a pseudo-liquid public vehicle called WebFinancial Corporation. Now it seems this plan may be derailed by none other than corporate board bogeyman Carl Icahn (who recently posted an interesting analysis on amending bankruptcy laws that would make our earlier post about the half a thousand Lehman lawyers redundant). The corporate raider, an LP of Steel Partners II himself, has filed a lawsuit against Warren Lichtenstein and his fund in Delaware Chancery Court case # 4284-CC, Bank of America NA et al vs. Steel Partners II Offshore Ltd et al. with Judge William Chandler, claiming Steel is committing fraud by going thru with the reverse merger without obtaining prior approval from, or even notifying, investors.

In the suit Icahn is seeking his $15 million July 2005 investment (thru vehicle ACF Industries), as well as legal fees and damages, and, what is scarier for Warren, a court-appointed custodian to manage Steel Partners LP. With Icahn spearheading the charge, it is only a matter of time before all other investors join in litigation against Steel Partners, making the proposed deal impossible and likely clearing way for full redemptions.

So much for this brilliant approach to halt redemptions. Next up on the drawing board-reverse-SPACs.

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Steel Partners in Need of Serious Rust Removal

Steel Partners, the fund of activist investor and up-to-now wunderkind manager Warren Lichtenstein, has fallen for some tough times. In what could turn out to be the next paradigm in the HF world, FT.com reports, Steel plans on converting its biggest hedge fund into a publicly traded holding company, in a move to stem redemptions as investors would likely only be able to sell their shares in the market, likely at a substantial discount, however gaining some incremental liquidity. FT notes that the fund was down 39% in 2008, and suspended redemptions in December after receiving redemption requests for 38% of assets. It is likely that more funds will follow this example to allow unhappy investors to exit without necessarily liquidating outright.

One can only harken back to the days of 2007 when there was so much money flying around that people would come up with crazy things like SPACs to provide special purpose investing vehicles to fatcats who could only buy so many shares of Sears Holdings at $150/share. Guess now it's time for the opposite... Things would be so much simpler if people could just say enough is enough, and follow Andrew Lahde's example graciously out of the industry. Seems like "Greed is good" is alive and well.

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