Electra Investment Trust, which in March 1999 embarked on a strategy of selling off its assets to defeat a hostile takeover bid by 3i, has recommended to its shareholders that it should create a smaller investment vehicle while retaining its existing emphasis on realising investments.
The company’s chairman, Brian Williamson, spoke at the company’s annual general meeting about what has been achieved since then. “Electra has achieved asset sales of over £1bn, or 75 per cent of the net asset value, and has already returned £795m of cash to shareholders.”
He said Electra expected to complete a further tender offer of £150m in May this year, at the then prevailing net asset value. This would be the third tender offer in two years and will bring the total cash returned to shareholders to £945m.
But, given current market conditions, the trust feels it may not be able to return maximum value to its shareholders by continuing to exit its investments at the current pace. Williamson continued: “Whilst the realisation of the portfolio within the original timescale remains achievable, market conditions have changed, and while these conditions persist, they will lead to a slowdown in the rate of realisations. In light of this, the board considers it is necessary to pursue a more flexible strategy to maximise the value of the remaining portfolio.”
The trust's board has therefore proposed that one third of future cashflow from the existing portfolio should go into a smaller investment vehicle in order “to take advantage of private equity opportunities arising from existing portfolio companies and investments in and alongside Electra Partners.” Subject to shareholder approval, the board intends to invest in Electra Partners’ European management buy-out fund. Electra Partners has managed the trust's assets for more than ten years.
The other two thirds of future cashflow, expected by the board to be no less than £500m, is supposed to be handed back to shareholders over the next three years. To achieve this, the trust envisages a series of share buy-backs and regular tender offers.
Since last year, there has been some uncertainty as to whether Electra Investment Trust would actually wind up operations completely. When its results were released in May 2000 for the previous financial year, Electra said in a statement: “Looking further ahead, the Board is aware of the views that a number of shareholders have expressed in favour of providing some means of continuation or a rollover vehicle to enable those investors who wish to do so to maintain a holding in a successor vehicle. This is something that the Board will take careful account of in due course as the realisation of Electra's portfolio proceeds and as further value becomes available for distribution to shareholders.”