Against many experts’ expectations, the activist shareholder Sherborne Investors has increased its stake in Electra Private Equity. This is just weeks after the private equity firm’s board rejected Sherborne’s strategic proposals.
PE News reported yesterday that the US-based Sherborne is purchasing 400,000 shares in Money Observer Rated Fund Electra Private Equity, in a deal worth £10.8 million. This will increase the company’s overall stake in the trust fund from 20% to 21.06%. The reports saw Electra’s share rise on the stock market by 29 pence to £27.07.
Just two months ago, the director of Sherborne, Edward Bramson, lodged his proposals to change the strategy in the private equity firm. His plans included dismissing Electra’s current director, Geoffrey Cullinan and replacing himself and colleague Ian Brindle as the new board members.
Sherborne Investors was also keen to unlock more potential share value at the firm. In the statement released, Sherborne wrote, “the aggregate value of shareholdings in Electra could be increased by more than £1 billion with lower risks and less volatility than under the current strategy. This equates to a price per share in the region of £60, significantly above current levels.” At the time, Electra’s board members rejected the proposal in a vote.
Proposal Result in Changes
Although the proposal was rejected, it is obvious the private equity firm took notice of the criticism. The company is currently in the process of conducting a strategic review, which is expected to be announced in January. The Telegraph reported that Electra’s capital structure and net-cash distribution policy are under scrutiny, together with the private equity firm’s fee arrangements.
Ewan Lovett-Turner, associate director at broker Numis Securities, told the Money Observer, “It appears that some of Sherborne’s criticisms of Electra resonated with shareholders, particularly charging fees on uninvested cash and its distribution policy (or lack of one). If the board takes decisive action on these issues, we believe it will become even more difficult for Sherborne to win over Electra’s shareholders.”
Sending a Message
Although number of analysts believed Sherborne would lose focus on Electra after the board voted against its proposal, some analyst see the recent purchase as sending a message to the firm.
The Money Observer quoted Iain Scouller, partner at broker Oriel Securities, saying, “This was a small increase of around 1 per cent of share capital. Sherborne probably wants to indicate it is not going away and will participate in any share price upside from the strategic review or growth in the portfolio going forward”.
Experts believe Sherborne’s decision might be more to do with an old-fashioned quest to make money from its relatively large share proportion in Electra. “It might be more of a traditional stock purchase on the back of an expected share price rise post the review announcement,” Rob Jones, an analyst at Liberum told the Telegraph.
But the story has been an interesting look at how private equity firms deal with shareholders and how to best respond to their demands. It remains to be seen what the strategic review will state and whether Sherborne will continue seeking more foothold in the company.