Steel Partners fund plan suffers court setback

By Joseph A. Giannone

NEW YORK, April 22 (Reuters) - Activist investor Warren Lichtenstein's plan to convert his struggling Steel Partners II hedge fund into a listed partnership suffered a setback on Tuesday when a Delaware state court judge said investors behind two lawsuits seeking to block the plan can combine forces.

The decision by the Delaware Chancery Court would allow cooperation between a group led by investor Carl Icahn and one including hedge fund Archstone Partners, investor Michael Price, the J. Paul Getty Trust and several college endowments.

The decision by Judge William Chandler also means the plaintiffs can start requesting a wide range of information from Steel Partners about its plans starting on Monday.

"I encourage the plaintiffs in these actions to consider consolidating the actions for all purposes and thereafter filing a consolidated complaint," the judge in his letter of decision.

According to the judge, Steel Partners did not oppose coordination between the two investor groups but objected to the "timing and nature" of the cooperation as sought by ACF Industries, a rail car company controlled by Icahn Associates.

Steel Partners, Icahn Associates and Archstone declined to comment.

After more than a decade of success as a take-no-prisoners hedge fund manager, agitating companies to make changes, Lichtenstein now finds himself the target of activists.

The Steel Parnters II fund fell by more than 40 percent in 2008 and then dropped another 18 percent in the first three months of 2009, according to the lawsuits.