Electra Private Equity is implementing a dividend policy following the conclusion of a review of capital structure, distributions and fees, according to a statement from the firm.
Electra launched the review on 6 October last year, following an extraordinary general meeting at which shareholder’s rejected activist investor Edward Bramson’s hedge fund Sherborne Investors push for two board seats and the ouster of director Geoffrey Cullinan.
The UK-listed investment trust will aim to return 3 percent of net asset value (NAV) to shareholders per annum through either a cash dividend or share buybacks. The board intends to give a cash dividend for the first six months of the current financial year for all shareholders when it announces its half year results in May.
In August Sherborne – which at the time had a 20 percent shareholding in Electra – requested a general meeting, calling for a shake-up of the trust’s board and requesting to lead a strategic review of the business, all of which Electra rejected.
In September Sherborne sent an open letter to Electra’s shareholders claiming that “with certain changes in approach, the aggregated value of shareholdings in Electra could be increased by more than £1 billion with lower risks and less volatility than under the current strategy”, PEI reported previously.
Electra is also slashing its management fees, something which Sherborne condemned in its September letter on the basis that over the last five years investment expenses have absorbed more than 42 percent of the total return on the trust’s investments.
Currently Electra Partners, which advises Electra Private Equity, receives an annual management fee equal to 1.5 percent of the gross value of Electra’s investment portfolio, including cash. As of 1 April 2015 there will no longer be a management fee on cash and the fee on “non-core listed and primary fund investments”, which make up around 8.5 percent of Electra’s portfolio, will be reduced to 1 percent per year.
According to Electra, for the financial year ended 30 September 2014, this new fee structure would have cut the priority profit share payable to Electra Partners by £7 million (€9.5 million; $10.7 million) to £18 million (€24.3 million; $27.5 million).
“We believe the new agreement with Electra Partners delivers improved value for all of our shareholders, while also keeping sufficient incentives and the financial means to continue our successful investment strategy,” Electra Private Equity chairman Roger Yates said.
The trust is also making changes to its capital structure. In March 2015 it will repay in full its multi-currency revolving credit facility, which as of the end of January was drawn to the amount of £154 million. This would save £4 million (€5.4 million; $6 million) a year in financing costs, Electra said.
The debt facility – which was increased from £195 million (€264 million; $298 million) to £275 million (€372 million; $420.5 million) and extended from December 2017 to December 2019 last September – will be used when needed to fund new investments prior to the realisation of existing investment, and “for other working capital purposes”.
Beyond the convertible bonds, redeemable in December 2017, and zero dividend preference shares, repayable in December 2016, already in issue, Electra will only borrow through this facility.
“We already have leverage within the individual companies that we own, so having long-term leverage on leverage seems to us to be the wrong thing to do,” Yates told PEI.
Sherborne has been gradually increasing its stake in Electra, last month pushing its shareholding up to 24.06 percent, and may have used debt to do so.
In its interim results, published in August last year, Sherborne said it had entered into a £50 million (€68 million; $76 million) unsecured term loan facility with a bank which “may be used to purchase shares, debt or derivative securities of Electra Private Equity, plc. through 31 December 2014”.
Electra shares are up 0.30 percent at 3,030 pence per share, giving the trust a market capitalisation of £1.075 billion (€1.454 billion; $1.644 billion).