Harbinger Group Inc. (NYSE:HRG) is a holding company. The Company is a public shell company searching for candidates for acquisition or business combination. The company has Zero income and does not operate any business for now. HRG’s majority share holder is Harbinger Holdings LLC, run by Phil Falcone. Phil Falcone is also the CEO of HRG.
As per Q3 2010 financials
Cash + Short Term Investments = 139.94 mio
Long Term Debt = ZERO
Total Liabilities = 9.35 mio
Cash + STI – TL = 130.59 mio
Outstanding shares = 19.288 mio
Cash Net of liabilities / Outstanding shares = 6.77
Current Share price = 4.34
Upside if share reverts back to net cash level = 56%
Please note that the above numbers do not include the recent bond issue.
Spectrum Brands Deal
In September, HRG announced a deal with Harbinger Capital Partners LLC with the following details:
Harbinger Group Inc. ("HGI"; NYSE: HRG) and Harbinger Capital Partners LLC ("Harbinger") announced a definitive agreement for the transfer of Harbinger's majority interest in global consumer products company Spectrum Brands Holdings, Inc. ("Spectrum Brands"; NYSE: SPB) to HGI.
Harbinger will contribute 27,756,905 shares of common stock of Spectrum Brands to HGI in exchange for 119,909,830 newly-issued shares of HGI common stock. Upon closing of the transaction, which is expected to occur in the fourth quarter of 2010, HGI anticipates it will hold 54.4% of the outstanding Spectrum Brands common stock, Harbinger will continue to hold 12.7% of the outstanding Spectrum Brands common stock and Harbinger will hold approximately 93.3% of the outstanding HGI common stock. Prior to the closing of the transaction, Harbinger may elect to contribute additional shares of Spectrum Brands common stock at the same exchange ratio described below.
The exchange ratio of 4.32:1.00 is based on the volume weighted average price of the common stock of HGI ($6.33) and Spectrum Brands ($27.36) for the 30 trading days to, and including, August 13, 2010, the date Harbinger proposed the transaction.
Post deal - How do the numbers look?
HRG will sell 119,909,830 new shares for 27,756,905 shares of SPB.
Current market value of 27,756,905 shares of SPB (27.64) = 767,200,854.20
Current market value of 119,909,830 share of HRG (4.34) = 520,408662.20
246 mio of additional value hidden based on current market prices, which market will recognize eventually. Quite sure, Harbinger Capital Partners LLC will exploit it, if the market does not.
Cash + STI – TL + SPB holding = 130.59 mio + 767.20 mio = 897.79 mio
Outstanding shares including the new shares issued = 139.198 mio
Per Share value = 6.45
Current Share price = 4.34
Upside if the transaction goes through = 48.6%
I have not looked at SPB, but per Bloomberg, it has a consensus target price of 38 compared to a current market value of 27 odd.
HRG is undervalued substantially with or without the deal. As I mentioned earlier, we can trust Harbinger (the hedge fund) to exploit it if the market does not.
It doesn’t stop here. It looks like Harbinger Capital has plans for HRG. HRG has issued bonds recently (strange for a company with no operations) and there is news that Phil Falcone may use HRG to park some of the hedge fund’s long term assets. I expect HRG to be in the news going forward. We may see the hedge fund selling some of its assets to HRG going forward.
Also, Harbinger Capital has bought around 10 mio shares of HRG at around $7.50 in the second half of 2009.
Disclosure: Long HRG