Robert Rayne, chairman of LMS Capital, and a group of shareholders whose overall holdings amounts to 35 percent of the company, have called for the business to be broken up. Rayne's proposals come a year after the firm shifted strategy to focus solely on direct investments; it had previously also made fund investments.
The turmoil at LMS echoes a similar dispute at Swiss-listed manager Private Equity Holding earlier this year. PEH shareholder Mantra Investissement launched a scathing attack on the group's management team, and called for all its assets to be realised to generate value for shareholders. Although the PEH management survived a shareholder vote on its strategy, a significant portion of its shareholder constituency voted against the management team.
The LMS shareholders share a similar concern to Mantra – that the discount to the group's net asset value is too great. According to the dissident shareholders, its discount to NAV stood at 38 percent as of 5 September. They also said they have received no dividends since 2006, and took issue with the illiquidity of LMS' stock.
The shareholder group, known as the “Concert Party”, includes Withers Trust Corporation and members of Robert Rayne's family. In a statement, they wrote: “The Concert Party believe an asset realisation strategy over an appropriate time period, with proceeds distributed to shareholders, is likely to deliver significantly greater value to shareholders in the short to medium term than the company's current strategy.”
Robert Darwin, a lawyer at Withers who is representing the Concert Party, added: “LMS is at a turning point in its investment life cycle. In the current environment, returning cash to fellow shareholders now will deliver greater value and certainty than the current strategy of reinvesting cash into long-term, illiquid, private assets, and that a new approach is in the best interests of all shareholders.”
However, LMS issued a separate statement saying it would not pursue this course, citing good performance since it revised its strategy in August last year when former First Reserve executive Glenn Payne assumed the CEO role.
LMS said earnings before interest, tax, depreciation and amortisation in its portfolio rose by 42 percent in the six months to 30 June this year, “Reflecting increased focus on profitability and cash generation”.
The statement continued: “In light of this, and having considered the Concert Party's request and taken independent financial advice from Quayle Munro, the directors, by a majority of six to two (such two including Robert Rayne), do not believe that a break-up of the company at this time would be in the best interests of shareholders as a whole.”
LMS has appointed an independent committee comprising its non-executive directors (excluding Robert Rayne), to consider the issues related to the Concert Party.