The board of Gresham House Strategic (GHS) has provided an update following the requisition request by Gresham House Plc (GHE) dated 14 October 2021. To summarise, GHE has irrevocable undertakings that, when combined with its own holding, amount to 46.8% of GHS’s issued share capital and so its board has concluded that the resolutions will likely pass.
Background to the requisition
On 11 October 2021, GHS announced the conclusion of its strategic review, the termination of Gresham House Asset Management Limited (GHAM) as Investment Manager and the appointment of Harwood Capital LLP (Harwood) as replacement Investment Manager, which is expected to become unconditional on 5 November 2021.
Following this announcement, as announced on 15 October 2021, the directors of GHS received from Rock Nominees Limited (on behalf of GHE, the ultimate parent company of GHAM) a notice of requisition of a general meeting of GHS dated 14 October 2021. This included resolutions proposing the return of capital to shareholders and changes to GHS’s board.
Irrevocable undertakings – 46.8% of GHS’s issued share capital
GHE has now informed GHS’s Board that it has obtained irrevocable undertakings from shareholders to vote in favour of resolutions which recommend the immediate return of cash on GHS’s balance sheet and the complete realisation of GHS’s assets and return of capital within 24 months.
GHS’s board says that, when taken with GHE’s own beneficial shareholding, these irrevocable undertakings account for 46.8 per cent of GHS’s issued share capital. As such, the resolutions are likely to be approved and the conclusion of its own strategic review cannot be fully implemented.
A run-off that is fair to all
Following discussions with GHE, GHS’s Board has agreed with GHE to delay the posting of the circular convening the requisitioned meeting until no later than 26 November 2021, so that it can include further resolutions relating to a change of the Company’s Investing Policy and a mechanism to return capital in a cost-effective and tax-efficient manner, which treats all shareholders equally.
Following the appointment of Harwood becoming unconditional, Harwood will be the Investment Manager and in the anticipated event of a change of Investing Policy, is expected to manage the run-off. GHS’s board says that it has received a conditional proposal from Harwood to waive its entitlement to management and performance fees during a run-off process of up to 24 months, provided that there is no early termination of its investment management agreement.
Board changes and proposal to enter into run-off
GHE has agreed to withdraw resolutions 3 to 6 of the Requisition upon the Board changes set out in paragraphs (a) and (b) below becoming effective. Given the anticipated change in focus from actively investing to run-off, the following changes to the Board have been agreed between GHS and GHE:
(a) Simon Pyper, originally nominated by GHE under resolution 4 of the Requisition, will be appointed as a director of GHS as soon as practicable, subject to the approval of the Company’s Nominated Adviser in accordance with the AIM Rules;
(b) Helen Sinclair has resigned from the Board today and Charles Berry has been appointed Interim Chair but will resign from the Board once Simon Pyper is appointed and becomes Interim Chair or, in the event he is not approved by the Company’s Nominated Adviser, another new director, to be appointed following consultation with major shareholders, such that the Board has a minimum of three directors at all times; and
(c) The Board will consider whether it should comprise three or four directors on an ongoing basis and if appropriate will conduct a process to recruit an external independent non-executive Director, who may be appointed as Chair.
Comments from Ken Lever, senior independent director of GHS
“I would like to thank Helen Sinclair on behalf of the Board for her service to the Company and leadership over the last six months and look forward to welcoming Simon Pyper to the Board. The Independent Directors are disappointed that as a result of the irrevocable undertakings obtained by Gresham House in support of the resolutions to place the Company into run-off, shareholders will not have the opportunity of a continuing investment in GHS. However, the Board believes that the agreement reached with GHE is in the best interests of shareholders as a whole in these circumstances.”
“The Board will focus on minimising costs and maximising value for all shareholders and welcomes the conditional proposal received from Harwood to waive management and performance fees during the anticipated run-off process, which represents a positive outcome in the circumstances.”
Comments from Anthony Townsend, Chairman of Gresham House Plc
“With shareholders representing c.47% of the total issued share capital supporting an immediate return of cash and realisation of the Company’s portfolio, it is clear that the conclusion of the strategic review was not supported by all shareholders. We seek good governance in all our activities, and treating all shareholders equally is part of that. Both GHS and GHE are committed to resolving these issues as soon as possible so a satisfactory outcome can be achieved.”
[QD comment: It is good to see that the signposts now point to this saga being resolved in a way that will be equitable to all shareholders. Shareholders will get some cash back now and the remainder over the next two years, which will hopefully be sufficient time to allow an orderly realisation of the portfolio without GHS becoming a forced seller in, and potentially taking some significant haircuts on, some very illiquid stocks. However, from the perspective of the management houses that have effectively been playing tug of war over GHS, the final outcome must surely feel unsatisfactory. Gresham House has lost a fund from its line up, with the associated management fee, and while Harwood Capital gets to add GHS to its line up, this will only be for a short time and it won’t be earning any management fees on this either. We doubt that this was Harwood’s intended destination when it began this journey. It raises the question as to why Harwood Capital would want to manage the run off without earning a penny. One explanation is that, given the overlap in style (both managers use a private equity style approach to investing in public markets) there is some overlap in holdings held by Harwood funds and GHS. It therefore seems to us that Harwood, in taking the reins of GHS, can have some influence over how and when these illiquid holdings are sold in the market so as to limit the impact on its other vehicles.]