Activist investor Sherborne Investors has requested that three new directors be appointed to the board of Electra Private Equity (ELTA) but has been rebuffed by Electra's board. Edward Bramson, partner at Sherborne, requested that he and two others be appointed to the board and that they be given a mandate to lead a strategic review of the trust, though he didn't set out any specific proposals.
Electra's board said that it has a long-standing policy of being comprised of independent non-executive directors, and Mr Bramson, who has built up a stake in the investment trust of around 19 per cent, would not be independent. Electra's board adds that the trust's good long-term performance is clear evidence of its policy of complete independence, and that its strategy has delivered consistently strong long-term returns, so it sees no reason to deviate from this. Over the 10-year period to 31 March 2014, Electra delivered a share price total return of 268 per cent, more than double the FTSE All-Share's 129 per cent over the same period, and more than six times the total return for Morningstar Private Equity Index's 39 per cent.
US based Sherborne Investors has been building up its holding in Electra since February when it took a 10 per cent stake in the investment trust. It is a specialist turnaround investor whose corporate actions have included building up a stake in F&C Asset Management, after which Mr Bramson was appointed chairman and overhauled the company by cutting costs.
Last year Sherborne took a stake in private equity investment trust 3i Group (III) which had been underperforming, but Sherborne didn't take any action and sold its stake in November last year, after benefiting from a strong share price rise.
Sherborne Investors focuses on European and US companies that have underperformed due to operational deficiencies, and many commentators feel its stake building in Electra is unusual because activist investors typically take stakes in investment trusts at relatively wide discounts to NAV which have resulted from poor performance. Electra has been one of the best performing trusts in its sector with a discount tighter than many of its peers, and which was also tight relative to its own history at the time Sherborne initiated its holding.
"We struggle to see how [Sherborne] can achieve the kind of returns that it has historically targeted from its holding in Electra as a turnaround play," comment analysts at Winterflood. "We hope that Electra's long-term investment potential is not damaged by a prolonged battle with an aggressive shareholder."
"As the bulk of Electra's portfolio is held in direct unlisted investments (70 per cent) we find it difficult to see how value will be readily unlocked, particularly as this section of the portfolio has become less mature," add analysts at Investec.
With a holding of 19 per cent of the shares Sherborne could call an extraordinary general meeting and attempt to gain wider shareholder approval to appoint its nominees to the board.
HM Revenue & Customs (HMRC) has said that Oxford Technology VCT (OXT) and Oxford Technology 3 VCT (OTT) maybe able to retain their venture capital trust (VCT) status, but changes will be required if this is to be the case. HMRC have given the VCTs 40 days to see if they can comply with the requirements, but would not say publicly what these are.
"Following further representations we are talking to the Oxford Technology VCTs about how they must get back in line with the VCT rules going forward. If this is successful then their tax status will continue to apply," said a spokesperson at HMRC.
The VCTs' boards are now considering these requirements with their advisers.
Oxford Technology and Oxford Technology 3 lost their VCT status in March after their fund manager breached the rules on investment limits when investing in pharmaceutical company Scancell (SCLP). But the funds' VCT status has been temporarily been restored while HMRC reviews its position on their status.
The VCTs have also recently removed their fund manager, Lucius Cary, as a director and have appointed new directors. Mr Cary has been under scrutiny since it was announced in March that these two funds had lost their VCT status.
OXTAG, an action group set up to try and reverse HMRC's decision to strip these two funds of their VCT status, feels it would be better corporate governance not to have the fund manager on the board. Oxford Technology argues that around half of VCTs' fund managers sit on their boards.
Other concerns are that the Oxford Technology VCTs have not been circulating required notices of meetings to all shareholders and OXTAG says this suggests Oxford Technology is not using an up-to-date share register to circulate notices of meetings.
Meanwhile for the annual general meeting (AGM) that had been scheduled for 9 July (now rescheduled to 27 August) Oxford Technology had asked that voting proxy forms be sent to its offices rather than to the VCTs' registrar, Capita. "This is unusual practice and leads to doubt in the minds of shareholders about the likely accuracy of the resulting poll," says OXTAG.
Oxford Technology said the reason it had asked for proxy forms to be sent to its offices was to keep costs down for shareholders, and that votes would have been collated and counted by staff at Oxford Technology Management, with copies of the results and every proxy form kept for verification. But it now says that for the rescheduled AGM on 27 August and possibly future ones it will get Capita Registrars to do this on the VCTs' behalf, though the cost per VCT will be £1,170.
Mr Cary remains as manager of all four of the Oxford Technology VCTs and is still a director of Oxford Technology 2 (OXH) and 4 (OXF) VCTs. He will continue to attend board meetings for all four.
The boards of the four Oxford Technology VCTs are also discussing merging them into a single VCT and will make a recommendation to shareholders in a few months. If they decide this is a good option shareholders will be asked to vote on it. The VCTs' boards say that "there would be considerable costs involved in doing this, but total running costs would be reduced thereafter."
The OXTAG campaign, which is managed by the UK Individual Shareholders Society ShareSoc, is recommending that at the AGM shareholders withhold their vote on the resolution to approve the accounts. "We still have some doubts about the accounts, and as this is effectively an advisory resolution we suggest this is the appropriate course of action," it says.
Going forward OXTAG is going to consider further issues including the performance fee structure as some shareholders feel the hurdle rate is too easy, in particular for the Oxford Technology 2, 3 and 4 VCTs.
Oxford Technology VCT's chairman John Jackson has also announced his retirement and he will be replaced by new board member Alex Starling, who is working with a corporate finance organisation that is exploring exit options for one of Oxford Technology VCT Plc’s portfolio companies. If this results in offers for the company, he will not be involved in Oxford Technology VCT's decision on whether to accept the offer to avoid conflicts of interest.
Oxford Technology VCT's other new director is Richard Roth, who has 10,000 shares in Oxford Technology VCT and holdings in the other three Oxford Technology VCTs. In June Oxford Technology and Oxford Technology 3 invited their shareholders to nominate themselves or someone they think would be suitable to stand as non-executive directors.
Richard Vessey has resigned as chairman of Oxford Technology 3 VCT and is being replaced by Robin Goodfellow who has 35,000 shares in this fund. But Mr Vessey will remain as a director.
Shareholders will be asked to vote on the re-election of the new directors at the VCTs' forthcoming AGM.
