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Crystal Amber calls for chair of portfolio holding, Allied Minds, to resign

Crystal Amber calls for chair of portfolio holding, Allied Minds, to resign – Activist fund Crystal Amber (CRS) has sent a requisition notice to the board of Allied Minds to convene a general meeting at which a resolution will be proposed to remove Harry Rein as a non-executive director.

Since November 2018, the fund has been an investor in Allied Minds and currently owns 18.2% of its issued share capital. In 2019, Allied Minds announced that it would henceforth focus on maximising returns and shareholder distributions from its existing portfolio, rather than continuing to invest in new businesses. The portfolio contains three significant holdings: Federated Wireless, BridgeComm and Orbital Sidekick.

In March 2020, Harry Rein was appointed chair of the Allied Minds board, having joined the board in November 2017. In January 2021, following a strategic review, Allied Minds introduced what it described as “a new form of governance better suited to achieve value creation.” With no CEO, Allied Minds is managed by its three non-executive directors.

CRS considers, in practical terms, that Harry Rein is the key decision maker. The 2020 Report and Accounts for Allied Minds states that “the chair is responsible for the leadership and conduct of the board.”

Since Harry Rein has been chair, the share price of Allied Minds has declined by 40%. Over the same period, the NASDAQ US Small Cap Index has risen by 85%. Over the last 12 months, the share price of Allied Minds has fallen by 36%.

The fund has conveyed several concerns to Harry Rein including:

1.    Lack of updating market participants regarding core portfolio company Federated Wireless, where the current carrying value significantly exceeds the market capitalisation of Allied Minds. In April 2021, at the Capital Markets Day held by Allied Minds, it was disclosed that revenues for 2021 for Federated Wireless were forecast to be $17m with $35m to $45m expected for the year to December 2022. It was stated that during Q3 of 2021, the company would have “a really good idea” of the 2021 outturn. In August 2021, Allied Minds reported that Federated Wireless had met its revenue expectations for its first half and was on track to meet its full year plan.  In October 2021, house broker, Numis Securities wrote: “Federated Wireless accounts for c.26p NAV per ALM share (but is likely worth a multiple of this) in our view, and, most importantly, the company keeps producing more evidence to assure that it is on track to turn over $17m in FY21 and $40m in FY22, and earn high, SaaS-type, profit margins.” CRS believes that price sensitive information is being withheld.

2.    The publication of a “rogue” press release by Federated Wireless, a company also chaired by Harry Rein. In November 2021, Federated Wireless issued a press release stating that revenue growth was four times higher than expected. When Crystal Amber wrote to Harry Rein to seek clarification as to why this information had not been released to market participants, Harry Rein responded: “A marketing manager at Federated released the initial Federated release without the board’s knowledge.” The release was subsequently amended to exclude any reference to revenue growth.

3.    Breach of provision 20 of the 2018 UK Corporate Governance Code. No external search consultancy was used to identify and recruit Bruce Failing as a non-executive director.

4.    Bruce Failing acts as the Senior Independent Director but CRS does not believe he is independent: both Bruce Failing and Harry Rein are directors of DelliveryCare RX. Bruce Failing was proposed by Harry Rein who advised the fund that he “persuaded Bruce Failing to join the board.”

5.    Breach of provision 24 of the 2018 UK Corporate Governance Code. Harry Rein is a member of the Audit Committee.

6.    Withdrawing of paid-for research from Edison after CRS highlighted an error with the percentage holding in a portfolio company. Edison also apologised for a previous error pointed out to Harry Rein by CRS: for several months, estimated net asset value had been materially overstated, as a result of not deducting the special dividend paid to shareholders in February 2020. CRS says it would appear there was a lack of oversight of these figures from Harry Rein.

7.    Failure to invite investors to the 2021 Capital Markets Day: invitations were only sent to analysts and not to investors. CRS was aware of two (paid for) analysts who cover Allied Minds being sent invitations. Subsequently, investors were made aware of the Capital Markets Day, with only a few days’ notice. The company’s broker subsequently apologised CRS for this error.

In its engagement with Harry Rein, Crystal Amber has found him to be a major impediment to value protection and realisation. Moreover, CRS says his track record evidenced by the concerns outlined above, speaks for itself.

Over recent months, on a number of occasions, CRS has asked Harry Rein to announce his resignation. He has declined to do so. Therefore, in order to safeguard against any further erosion of shareholder value, CRS is now seeking his removal.

CRS : Crystal Amber calls for chair of portfolio holding, Allied Minds, to resign

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