Electra: Sherborne renews quest for board seats

Sherborne Investors, shareholders in Electra Private Equity, have requisitioned the London-listed investment trust for a general meeting to hear resolutions to appoint Edward Bramson and Ian Brindle to the board.

This is the second time Sherborne partner Bramson and its former chairman Brindle have sought seats on the Electra board. It follows a general meeting in October last year during which resolutions to appoint Bramson and Brindle to the board were rejected by 62 percent of voting shareholders.

Activist investor Sherborne is the largest shareholder in Electra with a 29.28 percent stake, up from around 20 percent when it first sought board seats.

Since that vote, Electra board members, including its chairman Roger Yates have met with Bramson and Brindle, and Electra Partners, which manages Electra, has met with Sherborne twice as part of its investor relations, Electra said in a statement.

“This latest requisition follows confirmation given to Mr Bramson that the board of Electra remains unanimous in continuing to oppose his and Mr Brindle's appointment to the Board,” the statement said.

Electra said that it “remains convinced that the interests of all shareholders are best served by the combination of a board that is wholly non-executive and independent of any significant shareholder” and it supports the “continuing management of the portfolio by Electra Partners on an exclusive and wholly discretionary basis”.

In a letter from Yates sent to Bramson on 12 August, Yates wrote that “a departure from the wholly non-executive and independent Board risks destabilising the current successful partnership between the board and Electra Partners. In our view this outweighs the argument that Sherborne should have board representation simply because it is a large shareholder.”

Sherborne Investors chairman Talmai Morgan said in its interim report for the first half of the year published in August that the company “continues to believe that Electra represents an attractive investment opportunity resulting from the investment manager’s [Sherborne] participation in an operating turnaround.”

Yates said in the letter that Sherborne’s participation in the operation of its portfolio companies “conflicts with the exclusive and discretionary mandate given to Electra Partners” and rejected Sherborne’s contention that either the holding company or operating company require “an operating turnaround”.

The letter, which advised Bramson not to requisition another general meeting, said that “the board's recommendation to all shareholders will be to stay with the current model which is delivering strong returns for shareholders.”

Sherborne Investors Management published a letter on 18 September notifying its board of the requisition for a general meeting of Electra shareholders, which said that “Mr Yates told us that any board representation for Sherborne Investors was a 'Red Line' for him, without offering any sensible explanation.”

It continued: “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.”

The letter said that Sherborne’s proposal to install two non-executive directors meant the six existing directors “would constitute an unquestioned majority of an expanded board” and had been rejected on the basis it might pose a “risk to the board’s close relationship with Electra Partners”.

Sherborne said that Electra’s change in portfolio strategy and capital structure have led to an “increasing level of risk”, there was “scope to improve the effectiveness of corporate governance” and “the operating performance of its portfolio investments offers a valuable opportunity for improvement”, to which Bramson and Brindle could contribute.

Following a review of its capital structure, fee arrangement and distribution policy instigated after the shareholder vote last October, Electra announced in March that it would cut management fees, and introduced a dividend policy, as reported by Private Equity International.

In August, the firm netted £72 million ($113 million; €98.6 million) on its exit of Nuaire, a UK-based ventilation company, which generated a 3.8x return for the company on its original investment of £23 million. In May, it agreed to sell its interest in French laboratory company Labco for which it will receive €22 million, as reported by Private Equity International.

Electra shares were trading around 3250p on 18 September, up from around 2700p a year ago. The investment trust has a market capitalisation of £1.16 billion.