Philip Falcone’s new investment vehicle, HC2 Holdings Inc (OTCMKTS:HCHC), is being attacked by critics for its move to take over a little known but profitable steel fabricator, Schuff International, Inc (OTCMKTS:SHFK). The company’s shares are traded in the over-the-counter market.

Falcone

The investment vehicle floated a tender offer last week for Schuff shares to consolidate its ownership in the firm.

HC2 acquired 65% in May

Falcone, founder of Harbinger Capital Management, created HC2 Holdings this spring from a shell company that’s also off the main exchanges. The investment vehicle acquired a 65% stake in Schuff International in May from its controlling family. The company has since increased its stake to 70% and now intends to get it to 100%. Of course the recent open offer is for these remaining shares in Schuff.

Interestingly, these over-the-counter shares are now trading for over the $31.50 HC2 paid for them and higher than the price it wants to pay for the rest.

Tender offer invites criticism

Falcone’s latest tender offer comes less than three months after a surprise May 30 announcement that HC2 had acquired a 65% stake. Critics argue that HC2’s offer at $31.50 a share values Schuff International at about $135 million – below where its shares have recently traded.

Citing a person close to HC2, the New York Post reports that HC2 Holdings Inc is offering to buy the stock at that price, as that is where it bought its now 70% stake from the Schuff family several months ago. The person clarified: “We are not forcing anyone to do anything. They can either tender or not.”

However, Randy Katz, a securities lawyer at Baker Hostetler, says: “It’s a highly self-interested approach, the result of which is to leave bodies by the side of the road.” According to him, the key concern is that many owners of over-the-counter stocks aren’t aware of their rights when they receive such offers, including the fact that they have the right to reject them.

Falcone barred by the SEC

Last year, Falcone reached a settlement with federal Regulators that got him barred from the securities industry for five years. The SEC accused him of manipulating the market, along with his hedge fund Harbinger Capital Partners, using assets from the fund to pay his personal taxes and favoring certain customers of his fund ahead of others.

Interestingly, in a recent post on the investor social-networking site SumZero, one blogger argued that Schuff International, Inc could be worth $57 to $101 by reasoning out: “Our analysis indicates that Schuff holds considerable value beyond the current tender price offered. The HC2 Holdings Inc (OTCMKTS:HCHC) tender price is for $31.50, only 1.6% above the previous day’s close. Conservative valuations range from $57-101, considerably more than the current tender price.”