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Sherborne makes second attempt on Electra's board

Sherborne is making a second attempt to get representatives onto Electra Private Equity's board.
September 24, 2015

Activist investor Sherborne Investors (SIGB) is making a second attempt to appoint directors to Electra Private Equity's (ELTA) board. Sherborne, which holds about 30 per cent of Electra's shares, has requisitioned a shareholder meeting to vote on proposals that Edward Bramson, partner in Sherborne and Ian Brindle, a former UK chairman of PriceWaterhouseCoopers, be appointed to the board.

Shareholders rejected Sherborne's attempt to get Mr Bramson and Mr Brindle onto the board at a meeting in October 2014, with nearly two thirds of votes cast against. However, Electra launched a review of its fee arrangements with its manager, capital structure and distribution policy, in response to some of Sherborne's suggestions. Following the review, in February Electra said it would reduce its fees, return 3 per cent of its net asset value (NAV) a year via dividends and share buybacks, and repay its debt.

Sherborne says it is making this latest attempt because Electra's chairman refused Sherborne board representation, and because it believes recent changes to the trust's portfolio and capital structure have led to an increased level of risk. It also believes there is scope to improve corporate governance, and says the trust's latest results illustrate that the operating performance of its investments offers a valuable opportunity for improvement - which Mr Bramson and Mr Brindle could help with. They would not have control, however, as they would sit alongside six other directors.

Sherborne is writing to Electra's shareholders setting out its ideas in greater detail.

This is despite Electra having one of the strongest performance records among private equity investment trusts, beating most peers over one, three and five years both in terms of its share price and NAV returns.

Electra's board is urging shareholders to reject Sherborne's attempt to get Mr Bramson and Mr Brindle onto the board, saying they are best served by a board independent of any significant shareholder. Electra's board also doesn't believe Electra requires an operating turnaround either at the trust level or within individual portfolio companies.

Analysts expect the vote to be closer this time as Sherborne owns a larger stake, up from about 20 per cent a year ago. But Iain Scouller, head of the investment funds team at Stifel, adds: "Given Electra's good long-term track record, robust balance sheet management during the 2008 downturn and significant gains on realisations in recent years, we think that most institutional shareholders are likely to resist Sherborne's approach."

However, Numis says if Sherborne still has the support of 11 per cent of the share capital, together with its 30 per cent stake it could win just over 50 per cent of votes cast - assuming a similar turnout to last October's meeting.

1-year share price performance (%)3-year cumulative share price performance (%)5-year cumulative share price performance (%)
Electra2489145
Directly investing private equity trust average-13683
Private equity fund of funds average856100
FTSE All-Share Index-42239
FTSE Small Cap ex Investment Companies Index96999

Source: Winterflood as at 22 September 2015