Boussard & Gavaudan proposals unfriendly to smaller retail investors

Boussard & Gavaudan proposals unfriendly to smaller retail investors – The Europe-focused hedge fund company, Boussard & Gavaudan Holding (B&G), has struggled to arrest a long-standing discount and lack of liquidity in its sterling (BGHS) and euro (BGHL) shares – they both trade at discounts of more than 25 percent.

Still, the detail behind the announcement yesterday that B&G’s board was considering proposals to cancel the two classes of ordinary shares and roll them into one class of a new unlisted open-ended structure, suggests that retail investors are getting the short end of the stick.

Prospect of being trapped

Under the proposal, existing shares would be converted on a NAV for NAV basis into redeemable (allowing B&G to buy back shares) ordinary (“Class B”) shares. Following the conversion, each Class B share would be ‘locked-up’ for three years, and even after three years have elapsed, redeeming shareholders would be restricted to selling (at NAV) just 4 percent per month of their holding [A lot of investors would probably welcome at least having the option to sell shares before the conversion – this has not been proposed].

B&G say that the advantage of the conversion is that over time, shareholders will be able to realise a NAV value on their shares; given the wide discount both share classes trade on, this is some way off in the current structure. The company also adds that the conversions will reduce the on-going regulatory and other costs associated with the listings.

The implementation of the proposals requires the approval of shareholders, which the company says will be sought at shareholder meetings proposed to be held in mid-September 2019.

[A forced three year lock-up effectively traps investors into the new structure. Based on B&G proposing to go down this route and the market’s subsequent reaction, we’d highlight the following: 1.) presumably some investors have indicated that they are happy with these proposals, otherwise why would the board go down this path, but we suspect many, including many retail investors will be aggrieved at being trapped in the fund. and 2.) considering the level of the discount in the euro (28.85 percent) and sterling (27.03 percent) share classes, you would have expected the discounts to narrow following the announcement if the market believed the proposals were appropriate and unlocked value in the shares – this has not happened.

Many retail investors choose to put capital into investment companies because of the ease at which they can be bought and sold. When investment companies do wind-up, we believe that shareholders should have the option to either rollover into another closed-end fund (where possible) or receive cash.

El Oro offered both options recently, while Martin Currie Asia Unconstrained is offering a cash exit but no closed-end rollover option.]

BGHS/BGHL: Boussard & Gavaudan proposals unfriendly to smaller retail investors

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