Electra has announced that yesterday afternoon it received from Pershing Nominees Limited on behalf of Sherborne Investors (“Sherborne”) a requisition for a General Meeting at which resolutions will be proposed seeking to appoint Edward Bramson and Ian Brindle to the Board of Electra.
As shareholders are aware, this is the second time Sherborne has sought to achieve Board representation. At the General Meeting requisitioned by Sherborne in August 2014 and held in October 2014, resolutions proposing the election of Edward Bramson and Ian Brindle were rejected by shareholders. Since that time the Board has had dialogue with Sherborne, which has included three meetings between Mr Bramson and Electra’s Chairman, other Electra directors and with the whole Electra Board. In addition, Electra Partners LLP (the Manager of Electra) (“Electra Partners” or “the Manager”) has met twice with Sherborne as part of its investor relations activities. This latest requisition follows confirmation given to Mr Bramson that the Board of Electra remains unanimous in continuing to oppose his and Mr Brindle’s appointment to the Board.
The Board of Electra remains convinced that the interests of all shareholders are best served by the combination of a Board that is wholly non-executive and independent of any significant shareholder, together with the continuing management of the portfolio by Electra Partners on an exclusive and wholly discretionary basis.
The reasons for the Board reaching this conclusion were set out in a letter, dated 12(th) August 2015, to Mr. Bramson and the text of which is reproduced as follows:
“Dear Edward,
Following our recent discussions, the Board of Electra has given very careful consideration to your request that you and Ian Brindle be invited to join the Board of Electra. Specifically we discussed the change in your proposition to the Board, namely that a specified role in a review of Electra was no longer part of your proposal.
The Board’s duty is to review your latest proposition from the perspective of the interests of all shareholders, including Sherborne Investors (“Sherborne”). The Board of Electra remains convinced that the interests of all shareholders are best served by the combination of a Board that is wholly non-executive and independent of any significant shareholder, together with the continuing management of the portfolio by Electra Partners on an exclusive and wholly discretionary basis. A departure from the wholly non-executive and independent Board risks destabilising the current successful partnership between the Board and Electra Partners. In our view this outweighs the argument that Sherborne should have Board representation simply because it is a large shareholder.
At the same time the Board took into consideration your stated objectives as an investor – namely identifying companies “which [Sherborne] considers to be undervalued as a result of operational deficiencies and which [Sherborne] believes can be rectified by [Sherborne’s] active involvement.”* Indeed the interim report issued last week by Sherborne confirms this approach by stating, “it [Sherborne] continues to believe that Electra represents an attractive investment opportunity resulting from [Sherborne’s] participation in an operating turnaround.”* As we have pointed out to you before, the Board believes that this stated approach conflicts with the exclusive and discretionary mandate given to Electra Partners. In addition we do not believe Electra requires “an operating turnaround” either at the plc level or within individual portfolio companies. Finally and despite repeated requests, we have heard nothing from you on where you saw opportunities to improve the operational performance of any of our portfolio companies.
For all these reasons, the Board has decided unanimously not to offer you and Ian Brindle board representation.
If Sherborne, based on your advice, requisitions another General Meeting, you will be putting before shareholders a clear choice: On the one hand venturing into an uncertain future with unknown and unquantifiable risks to the relationships at both the Electra Partners and the portfolio company levels; and on the other hand, preserving the success and stability of the present arrangements which the Board believes are operating to the advantage of shareholders.
The choice will be for all shareholders to make. The Board’s judgement and the Board’s recommendation to all shareholders will be to stay with the current model which is delivering strong returns for shareholders.
We therefore urge you to follow this recommendation and advise Sherborne not to requisition a meeting to seek the changes to the Board that you have requested. Whether or not you follow this recommendation, we remain committed to maintaining an open dialogue with you as a representative of a major shareholder, in terms of the strategic direction of Electra and the performance of the portfolio, recognising the significant investment made by Sherborne. Notwithstanding any differences between us, our objective is to seek to ensure that Sherborne is a satisfied and supportive shareholder. If you would like further discussion about how we can all best achieve this, feel free to contact me at any time.
Yours sincerely
Roger Yates”
*Source: Half Yearly Report of Sherborne Investors (Guernsey) B Limited dated 7 August 2015 for the period ended 30 June 2015
The Board is unanimous in continuing to oppose the election of Mr. Bramson and Mr. Brindle to the Board of Electra.
Commenting on the requisition, Electra’s Chairman, Roger Yates, said
“The Board of Electra believes that the interests of all shareholders in Electra, including Sherborne, are best served by maintaining a wholly non-executive and independent Board and a clear mandate to the Manager, Electra Partners. Board representation for Sherborne would clearly undermine that independence and create a high degree of uncertainty for both the portfolio companies and Electra Partners, leading to a substantial risk of value destruction.”
Electra will send a notice convening a General Meeting to its shareholders in due course.
UPDATE 18/9
Here is the letter Sherborne sent to Electra:
“Gentlemen,
We are writing to inform you that we have requisitioned a general meeting of shareholders of Electra Private Equity plc (“Electra” or the “Company”) to propose the election of two new members to the board of Electra.
As you are aware, we have been in discussions with the board of Electra for several months and want to take this opportunity to provide you with some background to our reasons for taking this decision.
In response to issues raised by us during initial discussions in 2014 which were subsequently supported by other shareholders, the board eventually reversed its long-standing position and agreed to undertake a review led by Roger Yates, the Chairman of Electra. When the results of Mr. Yates’ review were announced in February the market’s response was unenthusiastic, allowing us to make a substantial increase in the partnership’s interest in Electra at the favourable prices on offer in the aftermath of the review. We also decided to resume our engagement with the board. Our holding has risen from 20% of the shares outstanding last autumn to approximately 30% today with a carrying value of approximately GBP360 million. We are now, by a significant margin, the largest shareholder in Electra.
Since February we have had several meetings and exchanges of correspondence with members of the board of Electra to outline the process, which we have employed successfully in similar situations, by which the entire board could explore opportunities to increase shareholder value. During the negotiations a series of contractual, legal, procedural and regulatory obstacles raised by the board were successfully overcome but, ultimately, Mr. Yates told us that any board representation for Sherborne Investors was a “Red Line” for him, without offering any sensible explanation.
Encouragingly, Electra’s senior independent director, Dame Kate Barker, and other board members have since then been much more forthcoming. They have told us that the directors now accept that our objective is for the entire board to evaluate opportunities to increase the value of Electra rather than to impose a predetermined plan. Moreover, they have indicated that the board could, in principle, waive its self-imposed requirement for all directors to be independent of shareholders.
The only remaining concern expressed to us by the board is that Electra Partners, which the Company has contracted with to manage its investments, might take adverse actions, if any members of the Company’s board were to be persons of whom Electra Partners does not approve. The board acknowledges that its concern is somewhat speculative given that Electra Partners has not indicated that it would, in fact, take any action.
Despite our reservations about the appropriateness of the board’s position in relation to an external investment manager, we nonetheless made a revised proposal intended to allay whatever residual concerns Electra Partners or the board might have. We proposed to nominate two non-executive directors to the board, resulting in a total of eight directors. The six current directors of Electra, who are presumably acceptable to Electra Partners at present, would, therefore, continue to constitute an unquestioned majority of an expanded board. Our offer was rejected on the grounds that non-executive representation for Sherborne Investors, of any kind whatsoever, might pose a risk to the board’s close relationship with Electra Partners.
As we and other shareholders have observed, Electra’s portfolio strategy and capital structure have changed recently, leading to an increasing level of risk. Our recent discussions with the board have also revealed that there is scope to improve the effectiveness of corporate governance. We believe that, on these grounds alone, additional informed and engaged board oversight, exclusively aligned with shareholder interests is strongly warranted at this time. Additionally, the Company’s latest results again illustrate that the operating performance of its portfolio investments offers a valuable opportunity for improvement to the benefit of all shareholders. We believe that our nominees, Mr. Ian Brindle and Mr. Edward Bramson, are well qualified to assist in the board’s consideration of both the risks and the opportunities that we see.
Mr. Brindle has been a director of several public companies and was formerly the UK Chairman of PriceWaterhouseCoopers and the Deputy Chairman of the Financial Reporting Review Panel. Mr. Bramson, a partner in Sherborne Investors, has also served as a director and chief executive of public companies in various business sectors, most recently at F&C Asset Management plc, a major asset manager with over GBP80 billion under management. We believe that both proposed directors have the appropriate credentials and track records to provide informed participation in the oversight and other functions of Electra’s board of directors. Further, their experiences would add to the balance of skills and experience of the Company’s board.
As noted above, we have made extensive efforts to understand the concerns of the investment manager and the directors of Electra and to modify our proposals to facilitate an agreed way forward. Given our long-term shareholding, which now stands at approximately 30%, the qualifications of our proposed directors, and the concerns that we have identified we feel that we have now gone as far as could reasonably be expected to engage and negotiate with the directors.
The opposition of Electra Partners and the board to the proposed addition of two non-executive directors does not seem to be based on any reasonable concerns or balancing of interests. We continue to hope that on reflection, they will ultimately invite our nominees to join the board by mutual agreement. We have confirmed to Dame Kate that we remain open to further discussions at any time and have also offered to cooperate in finding ways to reduce expenses of the shareholder meeting from the extremely high levels incurred at the previous meeting.
Our investment analysis, which we continually update as new information becomes available, remains substantially unchanged and continues to indicate that Electra has the potential to be a very promising investment. Our earlier estimates of the potential increase in value of Electra remain unchanged.
We will be writing a letter to the shareholders of Electra, in due course, setting out in detail our views on the opportunities to manage and mitigate risks, strengthen governance, and increase shareholder value and will keep you informed of public developments affecting our investment in Electra as they occur.
Yours faithfully,
Sherborne Investors”
ELTA : Electra gets new requisition from Sherborne