Digital 9 Infrastructure (DGI9) published a letter sent in response to the one sent by Aqua Ventures Limited (AVL) last week, which owns 3.5% of DGI9, outlining AVL’s desire to implement an immediate strategic review of DGI9. Aqua Ventures claims to have consulted, and have the support of, 20% of DGI9’s shareholders.
AVL’s letter outlined its dissatisfaction in the trust around what it believes was a lack of serious consideration to the feedback given by shareholders during the recent consultation process. It also expressed its particular concerns around the sale of a majority or controlling interest in Verne Global, which it believes would be likely to foreclose a sale of DGI9 and risk value destruction by stranding the trust’s other assets.
AVL highlighted three specific issues it felt were failings by the board:
- 1) retaining Triple Point as investment manager,
- 2) the management of DGI9’s investment in Verne Global raises serious concerns about the trust’s growth prospects
- 3) the failures of the board and investment manager call into question whether the board is acting in shareholder interests
AVL stated that the board should initiate a ‘proper’ strategic review “that includes a review of the ongoing Verne process and is supported by a financial adviser independent of Triple Point.”
If AVL does not receive assurances that before 3 November 2023 1) a proper strategic review is initiated and supported by an independent financial adviser acceptable to AVL; and 2) a new independent board member is elected with M&A experience to oversee the execution of the strategic review, it and its aligned shareholders will request an extraordinary general meeting.
DGI9’s board swiftly formulated a response, with the key takeaway being that it continues to believe the sale of Verne Global represents the best way to increase shareholder value at this time, with AVL’s actions being a dangerous complication. “The Board is of the opinion that prioritising a sale of 100% of Verne Global is in the best interests of shareholders because it would provide the best opportunity to de-lever the balance sheet and improve cashflow for DGI9 and its Group, thereby strengthening DGI9’s position and the prospects of maximising value for shareholders going forward.”
DGI9’s board also highlights that Goldman Sachs was appointed in relation to the sale process for Verne Global and more recently to support the board’s assessment of a wider set of actions. Both of these appointments were after Goldman Sachs terminated its engagement with Triple Point.
DGI9’s board generally dismisses the notions by AVL that its actions are not in shareholder interests, and the board strongly refutes any accusations that it is not in receipt of independent financial advice.
DGI9’s board in fact believes that AVL’s assertions and demands would be detrimental to shareholder value and also believes that Triple Point’s knowledge of DGI9’s portfolio is a unique advantage that cannot be replicated by other managers. The board alludes to AVL’s demands being in their own interests rather than the average shareholder: “The Board strongly believes that the actions you suggest in your letter would be value destructive at this point in time. Whilst appreciating your historic involvement with Aqua Comms and the recently terminated development agreement between Aqua Ventures and Triple Point, the Board has a duty to consider the interests of all shareholders and, therefore, the Board asks you also to consider the interests of other shareholders”
[QD comment: The sale of Verne Global is likely a necessary evil sadly, no board wants to see one of its crown jewels gone but in DGI9’s case it may need to cut it loose to save the rest of the trust. It is simply in too great a need for immediate liquidity to be overly picky about how the board raises cash. Such a situation is never desirable but it is a legacy of the previous management team. Shareholders are frustrated with the pace of action needed to sort out the balance sheet, and this is probably what has led to AVL’s letter. We note that AVL has a past relationship with DGI9, beyond that as mere shareholder, given its relationship with Aqua Comms. AVL may feel that given its history with the assets it may be better placed to lead the trust, or at least steer its direction. We think that the board is ultimately on the right track with the sale of Verne Global, and that DGI9’s discount should narrow post sale given how awash with cash the trust would be.]