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Rebels win out at Meldex

Created:
27 June 2008
Written by:
Richard Hemming

You know a company's annual meeting is going to be a stormy affair when you arrive to find the boys in blue on the door. "'Ello, 'ello, 'ello," were the first three words I heard as I got to the front of the building. Not that I was welcome - the company refused me admittance, but luckily I managed to get into an adjoining room where proceedings were relayed by television.

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From there, I watched in fascination as the struggle between management and shareholders played itself out for the best part of three hours. It was as gripping as a courtroom drama.

What was at issue was the company's conduct in relation to previous acquisitions (see Shareholders revolt at Meldex), its attempts to secure shareholder approval for more significant share issues, along with an increase in directors' remuneration - all set against the backdrop of a collapsing share price. Clearly, investors weren't here for the free sandwiches.

The drama effectively started in the morning, when Meldex issued a statement asserting that 8 per cent shareholder and founder Barry Muncaster "is trying to wage a concerted campaign with a view to changing the direction and strategy of the company", and casting doubt on Mr Muncaster's claim to represent 30 per cent of shareholders. It also announced the sudden resignation of independent director Peter Ibbetson, who cited "unacceptable behaviour from a minority of shareholders" including "abusive emails and phone calls". I hope he doesn't go into politics.

The outcome was that resolutions 2 and 8 were voted down, meaning that shareholders voted against the approval of Meldex's remuneration report and more importantly, denied the company authority to issue 100m more shares. Shareholders must have said at least four times that they didn’t have "a pot to piss in" if management decided to undertake a huge rights issue,

They also saw straight through Meldex's attempt to push the resolution through by linking it to one relating to the acquisition of Melbrosin - meaning that if shareholders voted against big new share issues, they'd also shoot down the Melbrosin deal. No less than four times, shareholder John Wall asked for acting chairman Jim Murray to explain the rationale for this. Dr Murray's responses can be summed up in single word - he probably dreams it - 'headroom'. Headroom or not, he was eventually obliged to make approval of the acquisition independent of the authority to issue 100m shares.

And if Dr Murray is dreaming about headroom, chief executive Richard Trevillion must be mumbling 'accretive' in his sleep. I lost count of the number of times he said that practically any acquisition the company makes would be EPS accretive. That may or may not be true, but after yesterday's events, he'd do well to think long and hard about more deals. Many shareholders are seething after shares that Meldex issued to a financially-distressed company earlier this year, were subsequently sold on to Gartmore at well below the market price. The share price has more than halved since that transaction.

Rebellious shareholders didn't have everything their own way. A request that shares be issued at no lower than 25p was thrown out (a good job, since the current share price is 32p, precious little headroom there), and Richard Trevillion did retain his position on the board. But with a flea in his ear. I'll leave the final word to one of the many disillusioned shareholders I met at the meeting: "Barry (Muncaster) wasn’t perfect, but at least he looked after shareholders."

IC VIEW:

Buy

Yes, Meldex is only a tiddler - £70m after the latest downward lurch in its price - but nevertheless, this was historic stuff. Shareholders frequently rattle sabres about directors' pay and the like, but rarely do they rebuke a board as sharply as this. As for Meldex, who knows what will happen next, but we maintain our speculative buy recommendation for now.

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