Woodford watch – Proton again – Last Friday we wrote a short piece on Woodford Patient Capital’s largest investment, Proton Partners International. When we were researching this, one thing popped up that looked odd to us. Proton’s admission document said that Woodford got a £1m commission for entering into the commitment (in the form of 500,000 shares in Proton) – where did that end up?
“In consideration for Woodford entering into the Commitment the Company has agreed:
i. to pay Woodford an Arrangement Fee in the amount of 1 per cent. of the aggregate value of
the Woodford Commitment to be satisfied by the issue of 500,000 ordinary shares to the
Investor on Admission.”
We talked to Woodford Investment Management (WIM), they told us that the commission was split between LF Woodford Equity Income (WEIF) and Omnis Income & Growth Fund. A careful trawl through the various announcements confirmed this – the 490,000 shares were handed to WEIF and 10,000 to Omnis.
But this commission split seems peculiar to us. At the time that Proton was admitted to trading, WEIF put up £9m and Omnis £1m – if WIM was basing the commission split on this alone then Omnis should have got 50,000 shares to WEIF’s 450,000. The commitment related to that issue and a further £80m however. WPCT has funded all of the £35m demanded so far yet didn’t get any of the commission.
WIM’s Paul Farrow said “Agreement was entered into by WEIF and Omnis, but only WEIF committed to pay further sums. Omnis’ future commitment is nil. Woodford has reserved the right, but not the obligation, to allocate the right to acquire future shares at a discount available under the Commitment Agreement to any other Woodford managed fund. We can also, with Proton’s permission, allocate the right to buy further shares to a third party.”
This also talks to the problem we raised last week. Does WPCT have to put up any more money if Proton wants it? The answer seems to be no, if it is no longer managed by WIM. In that case, the only party bound to the commitment would be WEIF. For that reason at least, WPCT should be terminating its management contract now.
WPCT : Woodford watch – Proton again