Trian Investors 1 will plow on regardless – Trian Investors 1, which currently holds all of its portfolio in shares in Ferguson, hopes to diversify this. It put the plan to a shareholder vote and it was approved but only by 52:48. The board felt it should consult dissenting shareholders and this is their report, announced today:
“At the Company’s AGM held on 14 June 2021, shareholders voted by a majority of 52% to 48% in favour of amendments to the Company’s investment policy which are designed to enhance the Company’s ability to generate long-term shareholder value.
Though pleased that the ordinary resolution passed in accordance with the Board’s recommendation, the Directors took note of the narrow vote margin. Prior to the AGM, the Directors met with several shareholders to understand their view on the proposed changes to the investment policy. Recognising their responsibility to follow up after the AGM, they promptly contacted shareholders representing over 50% of outstanding Shares, including all large shareholders who indicated that they had voted against approval of the amended investment policy. Through one of the Company’s corporate brokers, meetings were set up with the Board and the Investment Manager at which a variety of topics were discussed with those shareholders who accepted the invitation to meet, including those shareholders’ reasoning for their voting decisions and any policies they believed that the Company should adopt in the future, including with respect to the use of Target Company dividends.
In sum, most shareholders who voted against the proposed investment policy amendments expressed concerns about liquidity and the fact that the Company’s Shares were trading at a significant discount to NAV. They also focused on the revisions to the Company’s policies under which all or part of the profits from the single investment in Ferguson may no longer be returned but could instead be recycled and retained for the purpose of making new investments. As previously noted, the Board and the Investment Manager believe that the revised investment policy will enhance the Company’s ability to become a larger, more widely-held and higher-profile public company, and they emphasised their viewpoint in discussions with shareholders.
The Directors and the Investment Manager have since discussed the feedback received from shareholders in detail and have considered further how best to implement the new investment policy. The Board understands the expectations of those shareholders who had anticipated some return of their capital and voted against the revised investment policy, but it must also recognise the interests of the majority of shareholders who voted in favour of the revisions and who supported the proposition that the revisions can help generate more attractive returns over time than would be the case under the Company’s original investment policy.
In this context the Board also notes that, when it approved the amendments to the investment policy, it considered Trian SLP’s commitment to receive future incentive allocations in the form of Shares to be valued at NAV. The Board believes that these proposed issuances of Shares will provide a greater pool of capital for use by the Company and further alignment between the Investment Manager and the Company’s shareholders.
While the Investment Manager continues to evaluate potential investment opportunities, the Board remains highly committed to monitoring the Company’s trading activity and seeking to improve the liquidity and the trading price of the Company’s Shares in relation to NAV. Furthermore, in light of the feedback received from shareholders, the Company currently expects to use ordinary dividends received from Ferguson that are not needed for working capital or other corporate purposes to fund Share repurchases. The Investment Manager meanwhile believes that the Company will have capacity to complete additional Share repurchases opportunistically, although the potential benefits of such capital returns will need to be balanced against the potential negative impact on the Company’s ability to implement its highly engaged investment strategy.
Longer term, the Board intends to work with the Investment Manager to pursue the Company’s overriding objective which – to reiterate – is to compound shareholder capital and use the Company’s enhanced investment flexibility to build the Company into a larger, more widely-held and higher-profile public company over time. The Board believes that Trian’s Founding Partners’ long history of completing strategic transactions in operating businesses, and the Investment Manager’s commitment to exploring M&A opportunities that can benefit the Company, should give shareholders additional comfort that the goals set out ahead of the AGM can be accomplished. Accordingly, the Board and the Investment Manager both look forward to continuing an open dialogue with shareholders.”t
[We think that the real issue here is probably the discount. If the shares were trading close to asset value, dissenting investors could just walk away. Given the major shift in policy, we feel that investors should have been offered a cash exit. Now Trian Investors 1 may be stuck with a large pool of unhappy investors for some time, and with the balance in favour of the new strategy so narrow, poor returns from here could lead to a full-scale revolt.]
TI1 : Trian Investors 1 will plow on regardless