Trian Investors 1 (TI1) has announced that, following consultation with major shareholders, it will compulsorily redeem no less than 95% of each shareholders’ holding by 30 June 2023 at the latest. It says that this redemption is to be satisfied by a distribution of the investment partnership’s underlying assets (including an in specie distribution of shares) at a value equivalent to the Board’s estimate of the then prevailing net asset value. This latest announcement follows the extraordinary general meeting (EGM) held on 5 August 2022, which was called by a group of investors to shake up the board and address corporate governance concerns (details below).
Background to the EGM
The EGM that was held on 5 August 2022, was called by an ad hoc committee of independent investors comprising Global Value Fund, Invesco, Janus Henderson Investors UK Limited and Pelham Capital which, along with Aegon Asset Management UK (which was supportive of the resolutions proposed), hold 43.6% of the TI1’s shares. The EGM was called with the aim of replacing three directors (Chris Sherwell, Simon Holden and Anita Rival) for not meeting ‘required standards of corporate governance’ and nominated two others to replace them (Robert Legget is an independent and Miles Staude would represent the committee). The proposers argued that this would create a new board with a majority of independent directors, so as to achieve an acceptable standard of governance and restore the trust and confidence of the independent shareholders (click here to read more on the EGM).
In the event, Chris Sherwell was voted off of the board and Simon Leggett joined in his stead. Following this, Mark Thompson was appointed as chair of the Board of the Company and consequently, has resigned as audit committee chair, with this position being taken over by Simon Leggett.
Since the EGM, the Board says that it has been working with TI1’s manager (Trian Investors Management, LLC) and the Company’s advisers to formulate proposals to achieve the objectives of shareholders as a whole. The compulsory redemption is then outcome of that process.
Extracting value from the investment partnership
TI1’s Board says that its holdings in Ferguson plc (FERG) and Unilever plc (ULVR), which are held through the investment partnership, Trian Investors I LP, have significantly outperformed the FTSE 100 over relevant periods. In recent discussions between the board and the manager, the manager has reportedly reiterated that it is very pleased with the FERG and ULVR investments to date and believes that there is still significant value potentially to be achieved through the Company’s holdings in FERG and ULVR. Nevertheless, TI1’s Board acknowledges that a significant portion of the current shareholder base would like the opportunity to exit their shareholding at or around net asset value. It has therefore agreed terms for a redemption with the manager.
As part of the proposals and conditional on their successful implementation, it has been agreed:
1) with the Investment Manager that on Redemption it will receive its final Management Fee payment in lieu of notice calculated, through to 31 December 2023;
2) with Trian Investors 1 SLP, L.P. (the Special Limited Partner) that it will continue to be entitled to receive the Incentive Allocation which will be determined based on the performance of the Investment Partnership at or about the time of Redemption, i.e., on or before 30 June 2023; and
3) with the Special Limited Partner that its Incentive Allocation may (at the Special Limited Partner’s election) be settled through an in-specie distribution of the Investment Partnership’s underlying assets rather than in cash or through a further issue of the Company’s shares.
The board says that shareholders (including Trian Subscriber) representing approximately 86.3% of TI1’s issued share capital have indicated their support for the proposals as a whole (including the compulsory redemption and subsequent winding-up of TI1).
Redemption benefits
The Board believes that the Redemption will have the following benefits:
- The Redemption represents a significant return of capital to shareholders. For illustrative purposes only, if the Redemption had occurred on 31 July 2022, based on the NAV per share as at close of business on 31 July 2022, and specifically the closing prices of FERG and ULVR shares on such date, it is estimated that the Redemption would have returned approximately £420 million of value to shareholders;
- The current discount of holding FERG and ULVR shares through the Company will be eliminated in respect of those assets that are distributed in-specie to shareholders;
- The Redemption will allow each shareholder to determine the most opportune time to realise their exposure to ULVR and/or FERG (and, in the case of FERG, taking into consideration its potential eligibility for inclusion in various U.S stock indices, including the S&P 500 Index);
- The traded market in FERG and ULVR shares is significantly more liquid when compared to trading in the Company’s shares.
Details of the Redemption will be announced in due course. Once the Redemption has been completed the Board will commence a process to wind-up the Company with any residual net assets to be returned to shareholders in cash through that process.
Comments from Mark Thompson, Chairman of Trian Investors 1
“The Board is confident that its proposals represent a positive and sensible way forward that delivers an outcome which all shareholders can support. The share redemption scheme recognises the significant potential future upside from the Company’s core holdings, while meeting the desire of certain investors for greater liquidity and of the Company’s Board to see its discount to fair value unwind.”
[QD comment: It is good to see some form of resolution being put forward that finally addresses shareholders concerns properly. While it is unsatisfactory that shareholders have needed to force the issue in this way, they will now be able to achieve an exit at something close to NAV (less the various fees that the manager is extracting as detailed above). However, Unilever and Ferguson are both very large and liquid companies that investors could easily hold themselves directly and will if the proposals proceed as planned. It is hard to see what value the manager is adding at this point and it is therefore very disappointing to see that the manager will get its management fee through to the end of 2023 as well as the performance incentives.
We feel that, given investors’ disappointment, the manager should be returning cash to shareholders today and drawing a line under its fees at this point. However, we also recognise that, if the manager doesn’t want to play fair, it is difficult for the board to force the manager to do so, given the structure of the investment in the LP. It is not the first time that something like this has happened and this latest episode casts a shadow over these type of investment vehicles – those that give access to a single master fund. These sort of vehicles make sense in the private equity space, and there are some very well run examples, but seem far less relevant for listed investments.]