18 Sep 2015 09:35
Sherborne Investors (Guernsey) B Limited
18 September 2015
Sherborne Investors (Guernsey) B Limited
Requisition of a General Meeting of Electra Private Equity plc
The board of directors of Sherborne Investors (Guernsey) B Limited has been informed by the investment manager, Sherborne Investors Management (Guernsey) LLC ("Sherborne Investors"), that it has served, through Pershing Nominees Limited, a requisition upon Electra Private Equity plc ("Electra") to call a general meeting of shareholders for the purpose of proposing resolutions to appoint Mr. Edward Bramson and Mr. Ian Brindle to the board of directors of Electra. The full text of the letter is reproduced below:
"18 September 2015
Gentlemen,
We are writing to inform you that we have requisitioned a general meeting of shareholders of Electra Private Equity plc ("Electra" or the "Company") to propose the election of two new members to the board of Electra.
As you are aware, we have been in discussions with the board of Electra for several months and want to take this opportunity to provide you with some background to our reasons for taking this decision.
In response to issues raised by us during initial discussions in 2014 which were subsequently supported by other shareholders, the board eventually reversed its long-standing position and agreed to undertake a review led by Roger Yates, the Chairman of Electra. When the results of Mr. Yates' review were announced in February the market's response was unenthusiastic, allowing us to make a substantial increase in the partnership's interest in Electra at the favourable prices on offer in the aftermath of the review. We also decided to resume our engagement with the board. Our holding has risen from 20% of the shares outstanding last autumn to approximately 30% today with a carrying value of approximately £360 million. We are now, by a significant margin, the largest shareholder in Electra.
Since February we have had several meetings and exchanges of correspondence with members of the board of Electra to outline the process, which we have employed successfully in similar situations, by which the entire board could explore opportunities to increase shareholder value. During the negotiations a series of contractual, legal, procedural and regulatory obstacles raised by the board were successfully overcome but, ultimately, Mr. Yates told us that any board representation for Sherborne Investors was a "Red Line" for him, without offering any sensible explanation.
Encouragingly, Electra's senior independent director, Dame Kate Barker, and other board members have since then been much more forthcoming. They have told us that the directors now accept that our objective is for the entire board to evaluate opportunities to increase the value of Electra rather than to impose a predetermined plan. Moreover, they have indicated that the board could, in principle, waive its self-imposed requirement for all directors to be independent of shareholders.
The only remaining concern expressed to us by the board is that Electra Partners, which the Company has contracted with to manage its investments, might take adverse actions, if any members of the Company's board were to be persons of whom Electra Partners does not approve. The board acknowledges that its concern is somewhat speculative given that Electra Partners has not indicated that it would, in fact, take any action.
Despite our reservations about the appropriateness of the board's position in relation to an external investment manager, we nonetheless made a revised proposal intended to allay whatever residual concerns Electra Partners or the board might have. We proposed to nominate two non-executive directors to the board, resulting in a total of eight directors. The six current directors of Electra, who are presumably acceptable to Electra Partners at present, would, therefore, continue to constitute an unquestioned majority of an expanded board. Our offer was rejected on the grounds that non-executive representation for Sherborne Investors, of any kind whatsoever, might pose a risk to the board's close relationship with Electra Partners.
As we and other shareholders have observed, Electra's portfolio strategy and capital structure have changed recently, leading to an increasing level of risk. Our recent discussions with the board have also revealed that there is scope to improve the effectiveness of corporate governance. We believe that, on these grounds alone, additional informed and engaged board oversight, exclusively aligned with shareholder interests is strongly warranted at this time. Additionally, the Company's latest results again illustrate that the operating performance of its portfolio investments offers a valuable opportunity for improvement to the benefit of all shareholders. We believe that our nominees, Mr. Ian Brindle and Mr. Edward Bramson, are well qualified to assist in the board's consideration of both the risks and the opportunities that we see.
Mr. Brindle has been a director of several public companies and was formerly the UK Chairman of PriceWaterhouseCoopers and the Deputy Chairman of the Financial Reporting Review Panel. Mr. Bramson, a partner in Sherborne Investors, has also served as a director and chief executive of public companies in various business sectors, most recently at F&C Asset Management plc, a major asset manager with over £80 billion under management. We believe that both proposed directors have the appropriate credentials and track records to provide informed participation in the oversight and other functions of Electra's board of directors. Further, their experiences would add to the balance of skills and experience of the Company's board.
As noted above, we have made extensive efforts to understand the concerns of the investment manager and the directors of Electra and to modify our proposals to facilitate an agreed way forward. Given our long-term shareholding, which now stands at approximately 30%, the qualifications of our proposed directors, and the concerns that we have identified we feel that we have now gone as far as could reasonably be expected to engage and negotiate with the directors.
The opposition of Electra Partners and the board to the proposed addition of two non-executive directors does not seem to be based on any reasonable concerns or balancing of interests. We continue to hope that on reflection, they will ultimately invite our nominees to join the board by mutual agreement. We have confirmed to Dame Kate that we remain open to further discussions at any time and have also offered to cooperate in finding ways to reduce expenses of the shareholder meeting from the extremely high levels incurred at the previous meeting.
Our investment analysis, which we continually update as new information becomes available, remains substantially unchanged and continues to indicate that Electra has the potential to be a very promising investment. Our earlier estimates of the potential increase in value of Electra remain unchanged.
We will be writing a letter to the shareholders of Electra, in due course, setting out in detail our views on the opportunities to manage and mitigate risks, strengthen governance, and increase shareholder value and will keep you informed of public developments affecting our investment in Electra as they occur.
Yours faithfully,
Sherborne Investors"
-Ends-
Enquiries:
FTI Consulting +44 (0)20 7831 3113
Jonathon Brill
Numis Securities Limited (Broker) +44 (0)20 7260 1275
David Benda
Sherborne Investors (Guernsey) B Limited +44 (0)14 8171 3843
Talmai Morgan (Chairman)
Gillian Newton (Administrator)