Electra rebuffs Bramson review request

The activist shareholder has finally made a move, but his ultimate intentions for Electra remain unclear

Electra Private Equity has refused a request from shareholder Edward Bramson for additional board seats and a strategic review, the London-listed investment trust said this morning.

According to today's statement, Bramson – who has accumulated a stake of about 19 percent in Electra via his hedge fund Sherborne Investors – met with chairman Roger Yates and non-executive director Geoffrey Cullinan last Thursday. In the meeting, he asked to be appointed to the board of Electra, along with two other directors of his choosing. He also asked that he subsequently be allowed to lead a strategic review of the business.

However, Electra said that having “carefully considered” the request, it had “decided to reject it”. In today's statement, the company pointed out that it had delivered a share price return of 268 percent over the last ten years – more than double the total return of the FTSE All-Share over the same period, which stands at 129 percent, and more than six times the return from the Morningstar Private Equity Index, an index of its listed peers. It also trades at a smaller discount to NAV than most listed private equity groups.

“The Board of Electra actively keeps the Company’s strategy under regular review, is of the opinion that the current strategy has delivered consistently superior long-term returns for all shareholders and sees no reason to deviate from this successful strategy,” Electra said today.

Electra added that it had a long-standing policy of only appointing independent non-executive directors, which Bramson could never be due to the size of his stake.

It is understood that Bramson gave no indication of what he hoped to achieve with this strategic review. In a briefing note this morning, analysts at JP Morgan pointed out that this “nebulous term … could result in any number of outcomes, such as a change of investment manager (to Mr Bramson perhaps?), a new investment policy (which would require a shareholder vote), or a liquidation (which would also require a shareholder vote) … in our view, the Board is right to reject such a vague proposal”.

Max King of Investec Asset Management, a shareholder in Electra, also backed the board this morning: “Mr Bramson's request implies some unspecified change of direction, the need for which is far from apparent. Any change is more likely to be for the worse than the better, in our view.”

There has also been no indication of how Bramson intends to respond to the board's initial rebuff. As the largest shareholder, he is entitled to put these proposals to a shareholder vote – although JP Morgan suggested this was unlikely to succeed unless he provided more detail. “Shareholders may be as discerning as the Board and expect Mr Bramson to reveal more about his intentions before backing him against a Board and management team who in our view have delivered excellent results.”

Bramson – who has a history of shareholder activism – first bought into Electra earlier this year, but has so far been a largely passive shareholder, leading to much speculation about why he would choose to invest in the company. As a note from Liberum Capital put it this morning: “Sherborne focuses on investing in public companies that have underperformed due to operational issues but have the potential to increase profits substantially on the back of a turnaround strategy. ELTA does not appear to be a natural fit for this strategy.”

Electra Private Equity, whose investment manager is Electra Partners, led by chief investment partner Alex Fortescue, declined to comment further to the release. The vehicle has been investing at a record pace lately, putting £250 million ($424 million; €316 million) to work in the six months to March 2014 despite a “frothy” market.

At 1100 GMT, Electra shares were down 8.13p to 2,641.87p, a 0.31 percent fall.