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David Tepper Pulls Half of Backing of Shell Company Formed From Washington Mutual Bankruptcy

- By Holly LaFon

David Tepper (Trades, Portfolio), founder of Appaloosa Management, withdrew some support for the shell company that emerged from the bankruptcy of Washington Mutual during the financial crisis as it struggles to find an acquisition.

WMIH Holdings Corp. (WMIH) transitioned to an acquisition vehicle after exiting Chapter 11 bankruptcy in March 2012. At the time, it received heavy backing by KKR & Co. and $75 million in seed money from a group of investors to pursue the purchase of a company. It has struggled to do so in the ensuing four years, however, as competition in the mergers and acquisitions market has intensified.

WMIH has aimed to find a multi-billion-dollar company with an established operating business and good earnings and growth prospects, primarily in the financial services sector. But it has also searched in a variety of other industries, like health care, specialty retail, transportation, shipping and fleet management.

In a June conference call, WMIH said a lack of ready cash and in-house management had initially caused it to lose deals to more certain bidders. To boost its appeal, it raised an additional $600 million in December 2014 through a preferred stock offering, when David Tepper (Trades, Portfolio) first invested.

Tepper purchased 12% of the preferred shares, as well as 17,019,994, or 8.4%, of its common shares, making him the company's largest stakeholder, according to a Dec. 19, 2014 filing.

"More importantly, the people who invested in the $600 million offer are people I believe who are prepared to step up for the next phase of financing for a bigger deal," WMIH said in the conference call. "It's not just money we raised but who we raised it from."

The day Tepper's stake was disclosed, WMIH was priced at $1.88. On Oct. 5, when he sold 8,788,287 shares, WMIH was priced at $2.14, down 17.4% year to date. The sell shrunk his holding by 53.63%, leaving him with 7.6 million shares, or 3.7% of the company.

A better profile lent by Tepper and others helped WMIH advance in an acquisition process for a segment of an unnamed public company around mid-2015. But according to management, the deal fell through in a "competitive situation," "inches away" from close. WMIH lost $11 million of its $75 million seed capital in related legal and accounting fees.

To date, WMIH has not reported making an acquisition, though management said in June they were hopeful they would complete one in 12 months.

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This article first appeared on GuruFocus.