Activist Sherborne snaps up 5% of Barclays

By Steve Slater

LONDON, March 19 (IFR) - Sherborne Investors, a specialistfund led by activist investor Edward Bramson, has bought votingrights of 5.2% in Barclays, ramping up the pressure on theBritish bank to turnaround its fortunes.

Activist investors have become a growing threat for largelisted firms as they can use minority stakes to push throughmajor changes in strategy or on the board.

Barclays chief executive Jes Staley had already faced risingcalls to improve returns, especially at its investment bank.After years of cost-cutting and disposing of non-core assetsinvestors say returns and dividends need to show a markedpick-up as the restructuring ends.

Sherborne, which describes itself as "a turnaroundinvestment firm", has been building its Barclays stake sincelate 2017.

It has had meetings with the bank's investor relations teambut has not met management or board members and has not madespecific requests for a seat on the board or change in strategy,people familiar with the matter said.

It said on Monday it has spent £580m building up itsBarclays stake. It owns 1.94% in shares, and a further 3.21% viaderivatives, notably contracts for difference.

“As with all its shareholders, Barclays will continue toengage with Sherborne, and welcomes them as a shareholder,”Barclays said after the disclosure of the holding.

News of the stake sent Barclays shares up 4% to 217.8p.

"In our opinion, there is clearly substantial opportunityfor shareholder value creation from a change in direction,” aresearch note from KBW said, calling Barclays the perfectactivist target.

The Barclays stake has been bought by Sherborne Investors(Guernsey) C Limited, a specialist fund that raised £700m inJuly.

The fundraising prospectus said it would invest in a publiccompany that it "considers to be undervalued as a result ofoperational deficiencies" that can be rectified by Sherborne'sactive involvement.

"Accordingly, the investment will not be passive," it saidin the prospectus.

It said it had not identified the target at that stage, northe industry. The prospectus said the fund could not say howlong it would hold an investment for, but it was likely to befor at least one year. The average holding period forSherborne's four previous UK turnarounds has been 28 months.

UNDERVALUED?

Barclays shares are down 9% in the past year,underperforming a flat European share sector in that time andleaving the stock trading at more than 30% below book value.

Staley took over as CEO in December 2015 and cut costs andsold assets, but profitability has remained depressed by lowinterest rates, weak trading revenues and tougher capitalregulations.

Sherborne, which is based in New York, has previouslytargeted British financial firms 3i, F&C Asset Management, andElectra with activist campaigns. It forced Electra to fire itsmanagement team.

Sherborne's website says it concentrates its activities as aminority shareholder in publicly quoted companies and "byoffering our participation on the board" rather than seekingmajority ownership or control of a target.

It targets European and US firms and says it aims to workwith management and the board "to implement an aggressiveturnaround plan".

The website adds: "We invest in companies which we believehave the potential to increase their profits substantially, butwhich have underperformed for an extended period of time."

Sherborne's roots date back to 1977, when Bramson co-foundedNew York-based Hillside Capital. He founded Sherborne in 1986.(Reporting by Steve Slater)