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Electra: Turnout is crucial in shareholder vote

The vote by Electra shareholders on resolutions from its largest shareholder Sherborne Investors for two seats on the board will be close and depend on turnout, analysts say.

The vote by Electra Private Equity shareholders on resolutions proposed by Sherborne Investors to appoint two of its representatives to the board is going to be close with the result dependant on turnout, analysts said.

At a meeting on 5 November, shareholders of the listed investment trust will vote for a second time on resolutions from Sherborne to appoint partner Edward Bramson and Ian Brindle to the board. Electra’s board rejects the proposals.

“It’s going to be tight,” said Numis Securities head of investment companies research Charles Cade. “Both sides have been very hostile.”

The majority of shareholders support the board and the feeling is that Electra has performed well, but the board will need “a very high turnout to defeat Bramson,” he said.

 
In October last year, shareholders rejected Sherborne’s resolutions by 61.8 percent on a turnout of 81 percent of shareholders. The 38.2 percent of votes cast in support of the proposals included Sherborne’s shareholding of around 22 percent and shareholders representing a further 11 percent.

Since then, Sherborne has increased its stake to 29.83 percent, just below the mandatory offer threshold. It needs the support of a majority of votes cast to pass its resolutions.

Assuming the same level of shareholder support for either side and that the additional shares acquired by Sherborne since the previous vote were not from its supporters, Sherborne could have the support of about 41 percent of share capital, Cade said.

For Electra to win, the key thing is for the investment trust to encourage retail and wealth manager investors to come out and vote and support them, said Stifel managing director of investment fund research Iain Scouller.

In a research note, Stifel commented that much depends on how institutions such as Aviva Investors, Fidelity International and Insight Investment Management, which hold shares in both Electra and Sherborne, will vote. They hold 9.3 percent of Electra and 34.8 percent of Sherborne Investors (Guernsey) B, according to notes in an Electra statement.

“If the turnout is high, Sherborne will struggle,” noted Winterflood’s Investment Trust head of research Simon Elliott.

Independent advisory firms Institutional Shareholder Services, Glass Lewis and Pensions & Investment Research Consultants have recommended shareholders reject the resolutions, Electra said in a 26 October statement.

On the same day and in response to a Sherborne circular also published on the same day, Electra published a statement that said: “Electra's performance is excellent, that no credible alternative case has been put, and that there is a risk of significant value destruction in Sherborne obtaining board representation.”

That statement followed Electra chairman Roger Yates’s statement on 21 October that criticised Bramson for making a “series of ill-judged, ill-informed and ill-founded claims about the company and its board”. Yates added that “we cannot let this stand” and called on Bramson to outline his plans for the company.

That statement accused Sherborne of being “an activist investor with a short-termist and cost cutting focus.”

On 26 October, Sherborne responded to 21 October statement from Electra. Bramson said in the statement calling on shareholders to vote in favour of its proposals that “Electra would benefit from more openness to new ways of increasing shareholder value, to improving oversight and governance, and to a more transparent approach to disclosure.”

The letter repeated the shareholder’s claim that Electra’s board lacked independence from its investment manager and reiterated its view that there should be a review of operating performance and called for a “review based on more accurate financial data”.

“The hostile reactions of the investment manager and the board continue to seem disproportionate to a proposal by a long-term shareholder to nominate a minority of qualified directors to Electra's board who would work collaboratively and constructively with the board and with Electra Partners,” Bramson said in the statement.

Both sides are understood to be meeting shareholders to make their case.

Despite Sherborne’s questioning of Electra’s performance, the company has posted strong annual results, the analysts said.

On 30 September, Electra reported net assets of £1.503 billion ($2.3 billion; €2.1 billion) and a net asset value (NAV) per share of 3,914p. It generated a NAV total return of 24.6 percent over the financial year, which Winterflood noted was a “significant outperformance” of the FTSE All-Share Index, which was down 2.3 percent.

Electra’s 10-year annualised NAV stands at 13 percent, in line with the firm’s target of 10-15 percent. The gross portfolio return was 34 percent. Its portfolio was valued at £1.77 billion, including cash, with the firm investing £188 million over the course of the year and realising £259 million.

The firm also announced a final dividend of 78 percent, taking its total dividend for the year to 116p.

The outcome of the vote and what will happen should either the board or Sherborne win, is uncertain, the analysts said.

Investors are unsure what Bramson’s intensions are should he obtain two board seats, Cade noted. However, should the board prevail, Cade said he believed Bramson would table similar proposals at the annual general meeting in January.

If Sherborne is defeated, in the short term, the market could speculate whether the investor’s almost 30 percent stake creates the risk of a share overhang and could impact the share price, Elliot said. “Even if the board is successful the problem won’t go away.”

Spokespeople for both Electra and Sherborne declined to comment.