Publication of Circular and Notice of Meeting

RNS Number : 4427R

Electra Private Equity PLC

11 September 2014

 



Electra Private Equity PLC

11 September 2014

Publication of circular to shareholders in response to Sherborne's proposed resolutions to change the Board of Directors of Electra Private Equity PLC

Further to the announcement made by Electra Private Equity PLC ("Electra" or the "Company") on 22 August 2014 confirming receipt of a requisition notice from Pershing Nominees Limited on behalf of Sherborne Investment Management (Guernsey) LLC and its associates ("Sherborne"), the Company has today published a circular containing a letter from the Chairman to shareholders (the "Circular"). The Chairman's letter details the Board of Directors of Electra's response to Sherborne's proposed resolutions and its unanimous voting recommendation.

The full text of the Chairman's letter is below. Highlights are as follows:

On 21 August 2014, Sherborne, through Pershing Nominees Limited, requisitioned Electra to convene a general meeting ("General Meeting") to propose resolutions to appoint Mr. Bramson and Mr. Brindle to, and remove Mr. Cullinan from, the Board of Directors of Electra.

Sherborne Investors (Guernsey) B Limited, a listed vehicle, subsequently announced that Sherborne expects Mr. Bramson and Mr. Brindle to lead a strategic review of Electra, if appointed.

The Board of Directors of Electra does not support these proposals.

Electra is a successful investment company with a strategy which has achieved superior long-term returns

·      Electra has achieved an annualised return on equity over the ten years to 31 March 2014 of 14%.

·      The Board keeps the strategy which has led to these returns, and its execution by Electra Partners LLP (the "Manager"), under active review and considers that it is in shareholders' best interests to continue with this strategy.

Sherborne's resolutions lack both an explanation and any rationale

·      Despite requests from the Board of Directors of Electra for an explanation of the need for, or benefits of, a further strategic review, Sherborne has not provided one.

·      Mr Cullinan provides significant value to the Board through his in-depth private equity advisory experience.

·      Mr. Bramson and Mr. Brindle have provided no rationale for their proposed appointment.

Sherborne's actions risk permanently damaging long-term shareholder value

·      The average holding period of Sherborne's disclosed UK investments suggests an approach which is incompatible with the long-term nature of Electra's private equity investments.

·      Moreover the destabilising effect of a strategic review led or instigated by Mr. Bramson and Mr. Brindle on the Manager and Electra's investments runs the risk of damaging shareholder value.

The current Board of Directors of Electra best serves all shareholders' interests

·      The Board's view is that the interests of all shareholders are best served by a board that is wholly non-executive and independent of any significant shareholder, comprises appropriately skilled and experienced directors and maintains openness to shareholder dialogue.

The Board of Directors of Electra unanimously recommends that all shareholders VOTE AGAINST ALL the General Meeting resolutions

TIMETABLE FOR GENERAL MEETING

Voting record time for the General Meeting:

6.00 p.m. on Thursday 2 October 2014

Latest time and date for receipt of Form of Proxy from shareholders:

11.00 a.m. on Saturday 4 October 2014

Time, date and location of the General Meeting:

11.00 a.m. on Monday 6 October 2014

at Saddlers' Hall, 40 Gutter Lane, London, EC2V 6BR

Commenting on the Circular, Electra's Chairman, Roger Yates, said:

"The Board of Electra strongly believes that it is in the best interests of its shareholders to vote against all the General Meeting resolutions. Electra is a successful firm, with an investment strategy that has delivered superior long-term returns and is kept under active review. We also believe that it is very important to maintain a Board which is wholly non-executive and independent of any significant shareholder.  The resolutions proposed by Sherborne have the potential to be highly destabilising to Electra. Shareholders should protect their investment and the long-term value of Electra by voting against all resolutions."

All terms used within this announcement will have the same meaning as applied within the Circular.

The Circular will be posted to shareholders today, 11 September 2014. It will also be available at http://www.electraequity.com/. A copy of the Circular has been submitted to the National Storage Mechanism and will shortly be available for inspection at www.hemscott.com/nsm.do.

Enquiries

Goldman Sachs International [phone]

Anthony Gutman

Alex Garner

Ken Hayahara

J.P. Morgan Cazenove [phone]

Michael Wentworth-Stanley

William Simmonds

Greenbrook Communications [phone]

Andrew Honnor

Charlotte Balbirnie

Matthieu Roussellier

Chairman's Letter to Shareholders Extracted from Today's Circular

Dear Shareholder

The Board of Directors of Electra Private Equity PLC ("Electra" or the "Company") is writing today to all Electra shareholders in response to the requisition made by Pershing Nominees Limited on behalf of Sherborne Investment Management (Guernsey) LLC and its associates ("Sherborne") to convene a general meeting (the "General Meeting") to propose resolutions to appoint the founder and a partner of Sherborne, Mr. Bramson, and Mr. Brindle to, and remove Mr. Cullinan from, the Board of Directors of Electra. Sherborne Investors (Guernsey) B Limited ("SIGB"), a listed vehicle, has announced that Sherborne* expects Mr. Bramson and Mr. Brindle to lead a strategic review of Electra, if appointed.

For the reasons set out in this letter, in the view of your Board of Directors, the appointment of Mr. Bramson and Mr. Brindle and the removal of Mr. Cullinan are not in the best interests of all shareholders.

The Board of Directors of Electra has in place a strategy, the success of which is evident in the superior returns delivered to shareholders over the long-term. This strategy, along with the performance of Electra Partners LLP (the "Manager"), is kept under active review by the Board. The Board of Directors of Electra sees no requirement for a further strategic review to be undertaken by either Mr. Bramson and Mr. Brindle or any other party. Despite requests from the Board of Directors to understand where Sherborne sees "substantial opportunities" to improve shareholder value, no detail has been provided and no argument has been laid out explaining the need for, or benefits of, a strategic review led by Mr. Bramson and Mr. Brindle. The Board of Directors also has concerns about the destabilising effect of such a strategic review.  In the view of the Board of Directors, it runs the risk of damaging shareholder value by introducing instability into the Manager and Electra's investments.

The policy of the Board of Directors of Electra is that all of the Company's directors should be independent in order to be able to offer the highest standards of corporate governance and to best serve the interests of all shareholders. Neither Mr. Bramson, the founder and a partner of Sherborne, nor Mr. Brindle, who has a long-standing working relationship with Mr. Bramson and was the Chairman of SIGB until May 2013, would be independent. The appointment of Mr. Bramson and Mr. Brindle to the Board of Directors would compromise this policy of independence and introduce the undue influence of a single shareholder to the Board of Directors' decisions. The Board would not support a strategic review of Electra led or instigated by Mr Bramson and Mr Brindle, if appointed to the Board of Directors, since this would give them disproportionately greater influence to effect change in the Company relative to the rest of the directors.

Finally, the Board of Directors sees no rationale for the resolution to remove Mr. Cullinan as a director given the significant value he brings to the Board of Directors through his in-depth experience advising private equity companies.

The Board of Directors of Electra unanimously recommends that all shareholders VOTE AGAINST ALL the resolutions proposed by Sherborne. 

Electra is a successful investment company whose strategy has achieved superior long-term returns. Electra has achieved an annualised return on equity over the ten years to 31 March 2014 of 14%. The Board keeps the strategy which has led to these returns, and its execution by the Manager, under active review and considers that it is in shareholders' best interests to continue with this strategy.

Highly successful strategy

The Board of Directors of Electra has in place a strategy which takes advantage of Electra's inherent competitive advantages of a flexible investment mandate within a long-term capital structure. The Manager, which is an experienced firm with a long and high-quality track record in the private equity market, deploys this flexible investment mandate to invest Electra's capital in attractive investments across the full range of private equity opportunities. Electra's strategy, along with the performance of the Manager, is kept under active review by the Board.

Long-term returns on equity achieved at upper end of target range

The strong underlying investment performance achieved by the Manager has resulted in Electra's annualised return on equity** over the last 10 years (to 31 March 2014) being 14%, which is at the upper end of its target range of 10%-15%. The Board of Directors of Electra remains confident about the Manager's ability to achieve returns in this range over the long term.

Long-term outperformance against the peer group and FTSE All Share

The strong underlying investment performance achieved by the Manager has supported the delivery of long-term Net Asset Value ("NAV") and share price total returns*** for shareholders that have outperformed the Morningstar Private Equity**** and FTSE All-Share indices since 12 October 2006, when the current investment strategy was approved by shareholders.

Over the longer term, the cumulative impact of the NAV and share price outperformance is significant, and reinforces Electra's delivery of superior returns to its shareholders.

The table below compares Electra's share price total returns to 31 August 2014 with selected benchmark indices:

Benchmark	From 12 October 2006	Last 10 years
Electra Share Price Total Return	103.5%	73.2%
FTSE All-Share Share Price Total Return	53.8%	132.8%
Morningstar PE Index (excluding Electra) Share Price Total Return	(16.6)%	44.4%
FTSE Small Cap Share Price Total Return	52.6%	133.5%

Continued successful investment and realisation activity

Electra's flexible investment mandate underpins its ability to continue delivering value for shareholders. After two busy years for realisations, Electra's capital is successfully being deployed in attractive new investment opportunities. Electra enjoyed two years of exceptionally strong and profitable realisation activity in 2012 and 2013, with total proceeds of £760m. Electra's investment rate accelerated in 2013 to a record £337m, which contrasts with the experience in the broader UK private equity market. This continued in the first half of 2014 with a further £250m invested or committed, a record level for any six-month period. The Manager has demonstrated the ability to generate sustainable, long-term returns, while most recent investments in the portfolio are already generating returns.*****

Sherborne's resolutions lack both an explanation and any rationale. Despite requests from the Board of Directors of Electra for an explanation of the need for, or benefits of, a further strategic review, Sherborne has not provided one. Mr Cullinan provides significant value to the Board through his in-depth private equity advisory experience. Mr. Bramson and Mr. Brindle have provided no rationale for their proposed appointment.

No explanation or rationale has yet been given for a strategic review

The Board of Directors of Electra sees no requirement for a further strategic review to be undertaken by either Mr. Bramson and Mr. Brindle or any other party. Despite requests from the Board of Directors of Electra for an explanation of the need for, or benefits of, a further strategic review, Sherborne has not provided one. Neither has there been any explanation of the statement in SIGB's 22 August 2014 announcement that Sherborne Guernsey believes that a strategic review would provide "substantial opportunities…for all shareholders in Electra to increase the value of their holdings."

No rationale to remove Mr. Cullinan

Sherborne is seeking the removal of Mr. Cullinan who provides significant value to the Board through his in-depth experience in the private equity industry, including founding and leading the European private equity advisory business of Bain & Company, where he continues to act as an adviser. He has served as a Director of Electra since 2011 and is the current Chairman of the Board's Management Engagement Committee.

Sherborne's actions risk permanently damaging long-term shareholder value. The average holding period of Sherborne's disclosed UK investments suggests an approach which is incompatible with the long-term nature of Electra's private equity investments. Moreover the destabilising effect of a strategic review led or instigated by Mr. Bramson and Mr. Brindle on the Manager and Electra's investments runs the risk of damaging shareholder value.

Sherborne's approach inconsistent with Electra's longer term horizons

Sherborne's track record of investments does not suggest it is aligned with the long-term nature of Electra's private equity investments. The average holding period of Sherborne's disclosed UK investments (4imprint Group plc, F&C Asset Management plc, Spirent Communications plc and Elementis plc and 3i Group plc) was approximately 24 months. The nature of Electra's business requires a longer term horizon to achieve value for shareholders, which has been supported by the stability of the strategy overseen by the Board of Directors of Electra and the Manager since 12 October 2006.

Sherborne's historical investment holding periods

	4imprint	Spirent	Elementis	F&C	3i
Entry Date	Jul-03	Apr-06	Dec-04	Aug-10	Jan-13
Exit Date	Jul-04	Sep-09	Aug-06	Aug-13	Nov-13
No. of Months	12	41	20	36	10

A strategic review led or instigated by Mr. Bramson and Mr. Brindle could be destabilising

The stability and experience of the Board of Directors of Electra and the Manager have enabled Electra to maintain its long-term investment focus and successfully capitalise on its competitive advantages. The instability created by the proposed change in the Board of Directors of Electra and a strategic review led or instigated by Mr. Bramson and Mr. Brindle runs the risk of adversely affecting Electra and the Manager's ability to retain and recruit high quality people both for themselves and for Electra's portfolio companies, to source deals and funding, and to continue to drive long-term returns for shareholders. While the proposals may serve the short-term interests of a minority of shareholders, they are potentially damaging to long-term shareholder interests.

The current Board of Directors of Electra best serves all shareholders' interests. The Board's view is that the interests of all shareholders are best served by a board that is wholly non-executive and independent of any significant shareholder, comprises appropriately skilled and experienced directors and maintains openness to shareholder dialogue.

Long-standing policy to have a wholly non-executive independent Board of Directors

The policy of the Board of Directors of Electra is that all directors should be independent and non-executive. The Board is of the view that this composition allows it to offer the highest standards of corporate governance and to best serve the interests of all shareholders in Electra without preferring the interests of a single shareholder or group of shareholders over others. Additionally, the Board has always listened, and will continue to listen, to the views of shareholders, consistent with enhancing long-term shareholder value. The Board believes that maintaining an open dialogue with shareholders and the wholly independent non-executive Board structure over time has facilitated strong stewardship of the Company as evidenced by the strong performance of the Company over the long term.

Mr. Bramson, as the founder and a partner of Sherborne, is not independent and would not necessarily represent the views of all shareholders. Mr. Brindle, having a long-standing working relationship with Mr. Bramson including being the former Chairman of SIGB and serving on the board of directors of a number of companies in which Sherborne has invested, including 4imprint Group plc, F&C Asset Management plc, Spirent Communications plc and Elementis plc, would also not be independent. Their inclusion on the Board of Directors of Electra would compromise the principle of independence which the Board considers critical to its ability to best serve the interests of all shareholders.

The Board of Directors of Electra has the right skills

The Board of Directors of Electra has been deliberately constructed so as to comprise all of the skills relevant to Electra's business and which are required to provide effective stewardship of the Company's affairs. It comprises individuals with successful careers in private equity, asset management, economics, strategy consultancy, investment banking, the law and accountancy, as well as experience as non-executive directors of other UK public companies.

The Board is led by me as your Chairman. I have 30 years' experience of the asset management industry, including as Chief Executive of Henderson for ten years until 2008, as well as non-executive directorships at JP Morgan Elect plc, IG Group Holdings plc and St James's Place plc. I was appointed to the Board of Directors of Electra in 2012 and as Chairman in 2014.

The Senior Independent Director is Dame Kate Barker. Kate is an economist who was, until May 2010, a member of the Monetary Policy Committee of the Bank of England where she was the the only external member to be invited to serve three terms, and has held a number of other senior positions including Chief Economic Adviser to the Confederation of British Industry from 1994 to 2001. She was appointed to the Board of Directors of Electra in 2010 and is Chairman of the Board's Valuations Committee and Remuneration and Nomination Committee. She is a non-executive director of Taylor Wimpey PLC and the Yorkshire Building Society, a non-executive member of the Office for Budget Responsibility and a senior adviser to Credit Suisse.

Francesca Barnes was appointed to the Board of Directors of Electra in 2013. She has had a 27-year career in finance with Chase Manhattan, Swiss Bank and UBS, working in restructuring, loan portfolio management and later as Global Risk Manager and finally as Global Head of Private Equity for UBS.  Francesca is also a non-executive director of Coutts & Co and of Capvis, a Swiss and German private equity business.

Geoffrey Cullinan was appointed to the Board of Directors of Electra in 2011 and is Chairman of the Board's Management Engagement Committee. Geoffrey has strong experience of the private equity sector having founded and led Bain & Company's private equity advisory business in Europe from 1997 to 2005. He has over 30 years' experience of general management and strategy consulting, having also co-founded and acted as Managing Partner of OC&C Strategy Consultants in 1986 and served as Chief Executive of Hamleys plc. Geoffrey was a non-executive director of Datamonitor plc from 1994 to 2002 and continues to act as an adviser to Bain.

Josyane Gold was appointed to the Board of Directors of Electra in 2013 after a 32-year career as a lawyer in corporate practice in the City. Josyane was a partner of SJ Berwin, now King & Wood Mallesons SJ Berwin, where she was a founder of its private equity and investment funds practices.

Roger Perkin was appointed to the Board of Directors of Electra in 2009 and is Chairman of the Board's Audit Committee. Roger was a senior partner at Ernst and Young, having spent 40 years at the firm and its predecessors, including 30 years as a partner; he worked with a wide range of clients before specialising in financial services. He is also a non-executive director of Nationwide Building Society, Friends Life Group Limited and Tullett Prebon plc.

Your Board of Directors comprises directors whose experience and expertise in the complete range of matters relevant to Electra's business enables them to provide effective stewardship of the Company.

Open to shareholder dialogue

The Board of Directors of Electra has always listened, and will continue to listen, to the views of shareholders consistent with enhancing long-term shareholder value. The Board believes that maintaining an open dialogue with shareholders and a wholly independent Board structure best enables the Board of Directors of Electra to consider the interests of all shareholders without undue influence from any quarter.

Recommendation

The Board of Directors of Electra believes it is imperative that all shareholders are aware of its position in respect of Sherborne's actions.

The Board of Directors considers that the resolutions to appoint Mr. Bramson and Mr. Brindle to, and remove Mr. Cullinan from, the Board of Directors of Electra are not in the best interests of the Company's shareholders as a whole.

The Board of Directors of Electra unanimously recommends that all shareholders VOTE AGAINST ALL the resolutions proposed by Sherborne.

Yours sincerely,

Roger Yates

Chairman

* Sherborne Investors Management (Guernsey) LLC ("Sherborne Guernsey") is the investment manager of SIGB, LP, an investment partnership in which SIGB is a limited partner.  The beneficial interest in the shares held by the Sherborne nominee, Pershing Nominees Limited, is held on behalf of SIGB, LP's limited partners, including SIGB.  Sherborne Guernsey directs the investment affairs of SIGB, LP at its sole discretion.

** Return on equity is the annualised internal rate of return based on the difference between the opening and closing NAV, taking dividends paid into account.

*** Total return is the difference between opening and closing NAV or share price, assuming dividends are reinvested.

**** This index (prepared by Morningstar UK Limited) reflects the performance of 19 private equity vehicles, excluding Electra, quoted on the London Stock Exchange.

***** Electra's financial year begins on 1 October and ends on 30 September.

 

END

 

 

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