Electra Private Equity is an investment trust you wish you’d put a few quid into a long time ago. Even if you had bought just before the financial crisis in 2008, you would have doubled your money by now. And if you had the sense to back the trust the following year, at the bottom of the market, you would have enjoyed a ride from £7 to £36 a share.
Electra, in other words, is not obviously in need of a shakeup led by an activist investor. Yet that prospect is now in view. Edward Bramson from Sherborne Partners succeeded in getting himself and a sidekick voted on to Electra’s board on Thursday. He failed a year ago, when he owned 20%. Now, armed with almost 30%, he has managed to crawl over the line.
Indeed, the narrowness of Bramson’s victory is striking. Of 16.6m votes cast in his favour, he controls 10.7m, and co-investors in his Sherborne fund (notably Aviva Investors and Fidelity) have 4m. That leaves about 2m floating voters who thought Bramson was just what Electra needed. By contrast, some 14.4m votes backed the board, in effect endorsing chairman Roger Yates’s view that Bramson made “ill-judged, ill-informed and ill-founded” claims about Electra’s business.
Yates resigned on the spot after the vote, which was the correct course, since the two men clearly couldn’t coexist in the same boardroom, but he was right in his assessment of the raider. A year ago Bramson claimed there was £1bn of hidden value to be unlocked at Electra, but offered no evidence to support the boast. This time he mostly grumbled about the supposed lack of independence of Electra’s board, and its relationship with Electra Partners, the firm that manages the funds. But again, the arguments were unclear and his data unconvincing.
The suspicion is that Bramson’s real aim is to gain back-door control of Electra without paying a takeover premium. Hold on, the Sherborne camp would argue: his interests are directly aligned with other shareholders’. In theory, yes; in practice, one doubts it.
Investment trusts work best when there are clear lines of responsibility – a board appoints a manager of the funds and then holds that manager accountable. Bramson’s past remarks suggest he wants to meddle in that relationship by making day-to-day decisions about how portfolio companies should be managed. That might produce a quick gain or two, and the fizz of superficial success; but, over time, Electra would become a different beast, less able to stick to its long-term path.
Bramson has only two boardroom seats out of eight, so won’t necessarily have everything his own way, but momentum is on his side. Good luck, Kate Barker, the new chair, in keeping the peace; it looks an impossible task, especially when two supposedly reputable City investment houses like Aviva and Fidelity are prepared to swallow a prospectus as thin as Bramson’s. Activism is a fine thing when it’s done well, but Electra was the wrong target. A grubby day for the City.
A mistimed transformation
The curse of the “transformational” deal strikes again. It was only in February last year that Amec unveiled its £1.85bn purchase of Foster Wheeler, marrying its engineering operation, servicing oil and gas explorers and producers, with a company plying its trade towards the refinery end of the industry. The dreaded transformative label was applied by chief executive Samir Brikho to describe the wonders the takeover would bring.
Some 12 months after completion, Amec’s share price has halved, and now the dividend is going the same way. It’s being chopped in half to save £85m, a decision the City had failed to see coming – hence the 23% plunge in the share price on Thursday.
Shareholders clearly placed too much faith in Amec’s previous confidence in managing its way through a “lower for longer” period for the oil price. Ian McHoul, Amec’s finance director, now says customers talk of “lower for even longer” and put even more pressure on contractors. The dividend must join the list of savings Amec is trying to make.
By way of defence, the company could argue that the heaviest pressure is being felt upstream, where old Amec is concentrated, rather than in Foster Wheeler’s activities. In that sense, the new arrival has added defensive qualities. But that’s too charitable. The takeover – funded half in shares and half in cash – also saddled Amec with debts of £1bn. Foster Wheeler may have been the right target, but the timing and price were horrible.
Freshfields, the panel and the party
You know Freshfields – splendid legal chaps, members of the lawyers’ Magic Circle. Well, Freshfields, or Freshfields Bruckhaus Deringer in full, now has another distinction: it is the first legal firm to receive a censure from the Takeover Panel, a body that has existed for 47 years.
The breach of the rules may not sound serious outside the Square Mile. Freshfields, plus investment bank Credit Suisse, failed to consult the panel about the existence of a concert party, or relationship between two parties. JP Morgan got a milder telling-off.
The details of the tale need not detain us (they relate to the formation of Bumi, a Nat Rothschild mining venture shambles, via two acquisitions in Indonesia in 2011). But this may be an occasion when censure works better than a regulatory fine. Freshfields and the others must wear their rarely imposed badges of dishonour – and the time it took the panel to reach its conclusions suggests the offenders fought this ruling every step of the way.