Sherborne asks Electra shareholders to support board seats

Ahead of a meeting of Electra Private Equity shareholders, Sherborne Investors sent a letter urging them to vote in favour of its resolution to appoint Sherborne nominees Edward Bramson and Ian Brindle to the board.

The letter follows a circular from Electra chairman Roger Yates sent on 8 October urging shareholders to reject the resolution when they meet on 5 November.

This is the second time shareholders in the London-listed investment trust have been asked to vote on the appointment of Brindle and Bramson to the board. In October last year, 62 percent of Electra shareholders rejected the proposals. Sherborne has since increased its stake from about 20 percent to 29.28 percent, just below the threshold for a mandatory takeover bid.

In the letter, Sherborne said it had “been surprised by the extraordinary measures they have taken to block the appointment of a small number of new, well qualified directors who are able to bring a fresh outlook.”

It claimed that Electra had written to its shareholders threatening “retribution” if they supported the resolution.

Sherborne said that it was not consulted like other shareholders, despite being the largest, on a board review initiated after the earlier vote, concerning the fee arrangement with investment manager Electra Partners, the firm’s capital structure and its distribution policy.

Sherborne disputed in the letter that the revised fee structure was likely to reduce costs, asserted that the increase in borrowing “amplified the riskiness” of Electra’s capital structure and stated it would have preferred a dividend policy to a capital distribution policy.

Sherborne questioned whether the board could be independent, and while noting the addition of two seats to the existing six would not result in any control, said that its nominees would “help establish a better balance” and who were “wholly independent of management.”

“We believe the investment manager exerts inappropriate influence by deciding who is or is not suitable to join the board of Electra,” Sherborne said in the letter.

Among its other complaints, Sherborne called for an improvement in reporting and disclosures, and the measurement of performance, as well as questioned investment managers’ pay, and reiterated its concerns over the operating performance of portfolio companies. It also rejected the requirement for it to present a plan in order to join the board.

In a response to the letter, Electra’s chairman Roger Yates said that the company had been in dialogue with Bramson for 20 months, but he had yet to justify his claim to add £1 billion of value to the company, and dismissed Sherborne’s criticisms as “baseless”.