SIGB.L Regulatory News (SIGB)

Sherborne Investors (Guernsey) B Limited

17 September 2014

Letter to Electra Private Equity PLC Shareholders

Sherborne Investors Management (Guernsey) LLC ("Sherborne Investors"), as the investment manager of SIGB, LP has notified the board of Sherborne Investors (Guernsey) B Limited that Sherborne Investors will today send to Electra Private Equity PLC ("Electra") shareholders a letter regarding the upcoming general meeting of Electra. The full text of the letter is reproduced below:

"17 September 2014

Dear Fellow Shareholder,

We are writing to you to ask for your support of all the resolutions to be proposed at the forthcoming shareholder meeting of Electra Private Equity PLC ("Electra" or the "Company") to be held on 6 October 2014, which has been convened by Electra in response to our requisition.

The board of directors of Electra, to which the shareholder resolutions relate, sets the strategy for the investment of the Company's funds and manages its relationship with Electra Partners LLP, a separate entity to which Electra has delegated substantially all of its activities (the "Investment Manager"). At the date of this letter, associates of our firm, Sherborne Investors, own 7,062,485 shares in Electra, representing approximately 20% of the Company's total shares outstanding and accordingly we, like you, have a very substantial interest in the long-term success of the Company.

Although Electra's investment performance has been in decline for a number of years, Sherborne Investors believes that, with certain changes in approach, the aggregate value of shareholdings in Electra could be increased by more than £1 billion with lower risks and less volatility than under the current strategy. This equates to a price per share in the region of £60, significantly above current levels. This is why we are proposing a strategic review and certain changes to the Company's board of directors, to bring a fresh perspective that we believe will be in all shareholders' best interests.

Sherborne Investors

For readers of this letter who may not be familiar with Sherborne Investors, we would like to provide some brief background information on our firm. We have been engaged in the field of turnaround investing since 1976, in both listed and unlisted companies. As a result, we are well acquainted with the private equity sector in which Electra operates. Our focus is on companies where we believe that revisions to strategy or operations, or both, could materially benefit the company and all of its shareholders for the long-term. Typically in these situations funds associated with our firm acquire a significant shareholding and nominees of Sherborne Investors join the board to lead a strategic review and a subsequent turnaround of the company. Sherborne Investors is based in New York, but we have invested continually in the United Kingdom since 2002 with good results. Further information on Sherborne Investors, including the performance of our completed turnaround investments in the UK and a list of our significant investors can be found at the website of our publicly listed associated company, Sherborne Investors (Guernsey) B Limited, which may be found at www.sherborneinvestorsguernseyb.com.

Background to Investment in Electra

We became interested in Electra because it exhibits all of the major characteristics that we look for in a turnaround investment opportunity, including the following:

· Firstly, Electra's performance issues have not been short-term or transitory. To the contrary, the Company's underperformance has persisted for many years and has recently accelerated.

· Secondly, many of the causes of the Company's underperformance are, we believe, identifiable and correctable, as discussed below.

Investment Performance

Shown below is the annualised difference in performance over the last 10 years between Electra's net asset value ("Net Asset Value" or "NAV") and the FTSE 250 index of small- and medium-sized listed companies. The Company uses this index to value its investments as its holdings are principally in similar sized companies that are unlisted. Electra itself is also a constituent of the FTSE 250 and, accordingly, this is the most relevant benchmark.

The Company's reports generally refer to its performance against another index, the FTSE All-Share, which derives most of its value from very large companies that are not comparable to Electra or its portfolio companies. The ten year return of the more comparable FTSE 250 index was almost double that of the FTSE All-Share, so comparisons with the latter, of course, present performance in a more flattering, but less relevant, light.

As the table shows, Electra's investment portfolio would have failed to beat an investment in a relatively simple and inexpensive FTSE 250 tracking fund in each of the last seven years.

Electra's investments are generally not quoted on any stock exchange, but it owns controlling or influential shareholdings in most of its portfolio companies. In this respect it closely resembles unlisted private equity funds of which there are 1,305ii that, like Electra, invest in European companies. In the last five years, 67% of private equity funds of similar size dating from 2009 produced better returns than Electra.iii

The major reason for this underperformance appears to be that as successful investments, made by the Company 15 or more years ago, were disposed of, the investments that replaced them were substantially less attractive.

Prior to purchasing its shareholding, Sherborne Investors reviewed public information published by the Company and other sources to understand the reasons for the deterioration and the feasibility of a turnaround. Our investment analysis identified a number of areas for attention, three of the more significant of which are summarised below. We would be grateful if you would consider the points that we raise.

Operating Performance of Portfolio Companies

Fifteen years ago, when Electra's returns were considerably better than they are now, there were only 341iv competitors bidding against Electra for similar investments versus the 1,305 today. In our view, as a result of increased competition, Electra's past practice of financial engineering and seeking preferential access to favourably priced investments has proved to be no longer adequate to produce competitive returns. In fact, a recently published studyv indicates that more than half of all private equity returns are now the result of operating improvements in companies that funds acquire. As can be seen from the table below, this is an area in which Electra has fallen behind the times.

The information above is derived from an analysis of publicly available data on companies which represent more than 70% of the value of direct unlisted operating companies owned by Electra for more than one year as at the end of its most recent fiscal year. Accordingly, we believe that it is a representative sample.

The table above shows that rather than the operating performance of Electra's portfolio companies improving, the sample's performance has actually deteriorated with surprising consistency. The value of the Company's portfolio is highly sensitive to changes in operating efficiency, so even a modest improvement in operating performance would have a major positive impact on shareholder value. Accordingly, we believe that this element of investment returns should be a major focus of the strategic review that we propose.

The table below reflects the operating performance data for Sherborne Investors' completed active investments in the UK over the past 10 years. We believe that the operating improvements produced, and the consistency thereof, indicate that this is an area in which Sherborne Investors is well qualified to assist Electra.

Capital Allocation

In 2009 and 2010 the directors of Electra authorised the incurrence of borrowings in the form of a zero dividend preferred ("ZDP") and a convertible note ("Convertible"), respectively, totalling £147.5 million at redemption value. The specific purpose of these borrowings was to improve shareholder returns by enabling the Investment Manager to invest at a time when stock market values were depressed. This increased investment did not, in fact, occur as the funds raised were instead placed in cash deposits. As a result shareholders incur annual costs of 13.7%, or approximately £20 million, on these borrowings, while interest income from the cash deposits is minimal.

Electra has recently increased the pace of its investments, but markets are now approximately 70% higher than at the end of 2009, so the opportunity that the borrowings could have created in enabling the Company to invest in undervalued or underperforming assets may no longer exist. Moreover, since these debts begin to mature in approximately two years, investing the proceeds in illiquid assets now, risks creating a liquidity issue if financial markets do not remain buoyant. In view of the significant economic loss incurred on these borrowings, we believe that it is important for the strategic review to reconsider the conditions, if any, under which the board would borrow to gear the Company's balance sheet in the future.

Investment expenses

Over the last five years, investment expenses have absorbed more than 42% of the total return on Electra's investments, reducing shareholders' Net Asset Value by approximately £275 million over the period. The impact of investment expenses, comprised of interest costs incurred to finance the Company's portfolio, and management and other fees principally paid to the Investment Manager, is shown below.

These expenses create a very significant burden on returns to shareholders. We believe that the strategic review should establish a framework for appropriate levels of investment expenses for the future as a means to improve the returns earned on shareholders' capital.

Board Balance

In the year 2000, when Electra's investment returns were better than they are today, four out of seven of the directors had many years of executive experience in industry. The present directors appear to have admirable credentials in law, accounting, financial services, government and consultancy, but their combined commercial experience, according to public sources, appears to be limited. We believe that this lack of commercial experience may have reduced the board's sensitivity to the valuable opportunities for improvement in the portfolio companies that we have identified.

Sherborne Investors' nominees have extensive operating company turnaround experience which would restore significant balance to the overall skills and experience of the board. Additionally, as stated previously, Sherborne Investors has a substantial interest in the long-term success of Electra which is valuable in aligning the interests of the board with those of all shareholders.

Electra has delegated substantially all of its operations to the Investment Manager and has no employees of its own. The board of the Company has no executive directors and is instead comprised of six part time non-executive directors who set strategy for and monitor the performance of the Investment Manager. We are confident that the directors are carrying out these roles diligently and to the best of their collective ability, but the board's current composition and relative lack of analytical and other support may have made the management of their relationship with the Investment Manager less effective.

Governance

Our proposals, if passed by shareholders, would result in a board of seven non-executive directors, two of whom would be Sherborne Investors nominees. A clear majority of the directors and the chairman would, therefore, be "independent" within the meaning of the UK Corporate Governance Code (the "Code").

Sherborne Investors' nominees would commit to offer themselves for election annually which is consistent with our historical practice when serving on the boards of other London Stock Exchange listed companies. If elected, we will propose that the current directors, all of whom currently serve three year terms, adopt the same policy of annual election as is recommended by the Code. The election of our nominees and the change in policy on election of directors would therefore result in the board of directors becoming fully compliant with the Code.

Proposals

Sherborne Investors is requesting that you vote IN FAVOUR OF electing the following nominees to the board of the Company:

Edward Bramson

Mr. Bramson is currently a partner of Sherborne Investors. He previously served as Chairman of F&C Asset Management plc, Nautilus, Inc., Spirent Communications plc, Elementis plc, 4imprint Group plc, Ampex Corporation, and several private companies.

Ian Brindle

Mr. Brindle was the UK chairman of PricewaterhouseCoopers and deputy chairman of the Financial Reporting Review Panel. He is currently the Senior Independent Director of Elementis plc and Spirent Communications plc. Previously, Mr. Brindle served as Chairman of Sherborne Investors (Guernsey) A Limited and Sherborne Investors (Guernsey) B Limited and as a non-executive director on the board of directors of F&C Asset Management plc and 4imprint Group plc. Mr. Brindle will not receive any compensation whatsoever from Sherborne Investors in relation to Electra.

Mr. Bramson and Mr. Brindle have considerable experience in working collaboratively with the boards on which they serve to improve strategy, procedures, and oversight. If elected, it is proposed that they would lead a strategic review in which the entire board would participate fully. Upon completion of the review the conclusions would be presented to shareholders.

The proposals also include a resolution to remove one director, Mr. Cullinan who, at present, chairs the management engagement committee of Electra, which we understand to be the primary liaison between the board and the Investment Manager. We intend no personal criticism of Mr. Cullinan, but given the scope of the strategic review we feel that it would be difficult for him to be dispassionate, given that we understand he has been deeply involved with the Investment Manager and the existing strategy for a number of years.

Summary

Prior to requisitioning a meeting of shareholders, representatives of Sherborne Investors held separate meetings with representatives of the board of directors of Electra and of the Investment Manager. In response to questions about possible new initiatives to improve shareholder value, both groups indicated that they did not see the opportunity or the need for any such improvements and intended to continue with the status quo.

Regrettably, we believe that it would not be prudent or in the best interests of shareholders to continue on the existing course. Some years ago Electra held a position of prominence in the investment field which has now been somewhat diminished. We believe that the Company's former position can be restored if the board is willing to consider a fresh approach and to adopt a strategy that responds realistically to changed circumstances.

We have shared parts of Sherborne Investors' investment analysis with you. It indicates that all long-term shareholders could continue to share in a potential increase in value of Electra's shares exceeding £1 billion. It seems to us that the potential scale of the reward amply justifies the effort involved. It is an indication of the sincerity of our belief in the potential of Electra's turnaround that Sherborne Investors has invested almost £200 million in Electra on exactly the same terms as you, so that our interests are completely aligned.

We respectfully ask that you consider our proposals to lead a strategic review at Electra and to vote IN FAVOUR OF all of the resolutions at the meeting of shareholders which will take place on 6 October 2014.

Yours faithfully,

Sherborne Investors

HOW TO VOTE

By now you should have received a notice of general meeting of Electra ("GM") to be held at 11.00 a.m. (London time) on Monday 6 October 2014 at Saddler's Hall, 40 Gutter Lane, London EC2V 6BR ("Notice of GM").

By Post

You will find enclosed with the Notice of GM, a form of proxy for use at the GM ("Form of Proxy"). Whether or not you intend to attend the GM, Sherborne Investors would urge you to complete the Form of Proxy to vote IN FAVOUR OF all of the resolutions and to appoint Edward Bramson as your proxy for the GM.

The Form of Proxy must be completed and signed and sent or delivered, together with any power of attorney or other authority (if any) under which it is signed, so as to reach Electra's registrars, Equiniti Limited, at Aspect House, Spencer Road, Lancing BN99 6DA, United Kingdom as soon as possible but in any event no later than 11.00 a.m. (London time) on Saturday 4 October 2014. The return of the completed Form of Proxy will not prevent you from attending the GM and voting in person if you wish to do so.

Via CREST

CREST members may also appoint a proxy or proxies through the CREST electronic proxy appointment service by utilising the procedures described in the CREST Manual. CREST Personal Members or other CREST Sponsored Members, and those CREST members who have appointed (a) voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf.

If you need assistance voting your shares or have any related questions, please contact Sherborne Investors' proxy solicitor, D.F. King & Co., Inc.:

European Investors

Toll Free: +00 800 5464 5464

Direct: +44 (0)20 7920 9700

US Investors

Toll Free: +1 800 628 8532

Direct: +1 212 269 5550

Email: electra@dfking.com

OTHER INFORMATION

If you are in any doubt about the action you should take, you are recommended to seek your own independent financial advice immediately from your stockbroker, bank manager, solicitor, accountant or other independent professional adviser duly authorised under the Financial Services and Markets Act 2000, as amended, if you are resident in the United Kingdom or, if not, from another appropriately authorised independent financial adviser.

The contents of this document should not be construed as legal, investment or tax advice, nor should it be construed as an invitation to purchase or sell any of your shares in Electra. This document is being circulated to shareholders of Electra by Sherborne Investors for the purpose of supporting resolutions proposed by Pershing Nominees Limited (for and on behalf of Sherborne Investors and its associates) as a member of Electra pursuant to section 303(2)(a) of the Companies Act 2006.

Sherborne Investors believes that certain statements in this document may constitute "forward-looking statements". Forward-looking statements are necessarily based on estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and risks, many of which are subject to change. As a consequence, current plans, anticipated actions and future financial condition and results may differ from those expressed in any forward-looking statements made by or on behalf of Sherborne Investors. Additionally, forward-looking statements speak only as of the date they are made and Sherborne Investors undertakes no obligation to release publicly the results of any future revisions or updates it may make to forward-looking statements to reflect new information or circumstances after the date of this document or to reflect the occurrence of future events."

-Ends-

Enquiries:

FTI Consulting +44 (0)20 3727 1000

Jonathon Brill

Oliver Winters

Adam Cubbage

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)