Woodford Watch – Proton Partners
This morning the talk on Woodford Patient Capital seems to be centred around Proton Partners. This was quite a significant holding (7.8% of gross asset value) within Woodford Patient Capital when it last disclosed its list of holdings. Now it looks as though it may be its largest investment.
Proton Partners, which is developing a number of proton beam cancer treatment centres across the UK, is listed on the NEX exchange. It doesn’t trade in any meaningful volume, however, and so there is no way it could be considered a liquid investment.
WPCT owned 32.25m shares in Proton when that company was admitted to trading on NEX at the end of February. In May, it topped this up to 37.9m shares. Proton then announced on 3 July that, following an issue of shares, WPCT now owns 52.1m shares in the company, 30.2% of Proton’s issued capital and worth (based on a bid price of 210p) £109.5m, equivalent to about 16% of WPCT’s shareholder’s funds or 13.5% of gross asset value.
We have written before on the dangers of having a concentrated portfolio of risky assets – once again, the position in Proton looks excessive to us.
Given that Woodford Patient Capital is trying to cut its borrowings, you might be forgiven for questioning why it just splurged about £25m on topping up its Proton stake. The answer is – because Woodford Investment Management made a legally binding commitment to supply more capital to Proton – £80m in total. WPCT stumped up £10m in May and £25m in June, there could be more to come.
From Proton’s admission document: “Under the Woodford Commitment, Woodford, acting as agent for and on behalf of WEIF and OIG has given an irrevocable undertaking to subscribe at the request of the Company for up to new Ordinary Shares to a value of £80,000,000 at market price less 12 per cent., subject to a minimum subscription price of £1 per Ordinary Share no later than 31 August 2020. The key terms of the Woodford Commitment are set out in paragraph 11.6 of Part 4 of this document Under the terms of the Woodford Commitment, Woodford has the right to allocate the Ordinary Shares among any of the funds that it manages. In order to illustrate the maximum percentage of voting rights the Concert Party could hold, it has been assumed that 60 million shares will be allocated to WPCT and 10 million to each of WEIF and OIG. However, this is only a representation of how the commitment may be allocated among the members of the Concert Party and should not be taken as how it will actually be allocated.“
Here is where it gets interesting – the legally binding commitment seems to extend to WEIF (LF Woodford Equity Income) and OIG (Omnis Income & Growth Fund) but the para says that Woodford can allocate the shares among any of the funds it manages. All of the £35m that Woodford has invested in Proton under the commitment has come from WPCT.
Omnis has fired Woodford, Woodford has committed not to make any more unquoted investments for WEIF, another fund advised by Woodford, the Wales Life Sciences Investment Fund is just £100m in size. That must mean that Woodford could only turn to WPCT for the other £45m committed to Proton. If WPCT fires Woodford though, perhaps it could get out of this.
By the way, we think Woodford Patient Capital paid 176p a share for its extra Proton shares – that implies that these deals have boosted the NAV by £6.8m.
WPCT : Woodford watch – Proton Partners