Caledonia Realisation & Cayzer Cont
24 September 2003
24 September 2003
Not for release, publication or distribution in or into the United States,
Canada, Australia or Japan
Proposals for the restructuring of
Caledonia Investments plc ('Caledonia') and The Cayzer Trust Company Limited
Challenging Caledonia's performance record
Since the announcement by Cayzer Continuation Limited ('CC') and Caledonia
Realisation Limited ('CR') of proposals for the reconstruction of Caledonia and
CTC on 5 September 2003, a number of claims have been made by both Caledonia and
CTC about Caledonia's 'outstanding record of performance'. The boards of CC and
CR challenge those claims.
In a statement made earlier today, the boards of CC and CR said:
'We announced Proposals on 5 September which, in the view of the boards of CC
and CR, provide the best opportunity for existing shareholders in both Caledonia
and CTC to maximise value. These Proposals are supported by approximately 37% of
the Free Float. The boards of Caledonia and CTC have repeated their claims that
Caledonia has delivered long-term outperformance. In a letter to CTC
shareholders on 15 September 2003, the board of CTC referred to 'Caledonia's
outstanding record in delivering value and its belief that its successful
long-term strategy should continue to deliver outperformance going forward'.
These claims simply do not stand up to scrutiny.
'These statements are refuted by data from Mercer Investment Consulting
('Mercer'), the independent investment consulting company. The boards of CC and
CR believe this data demonstrates that shareholders in Caledonia - and by
extension shareholders in CTC, which holds 37.7% of Caledonia - have received
indifferent capital growth, a low yield (or income) and are seeing their
reserves being frittered away to pay dividends that Caledonia cannot pay out of
current earnings. Meanwhile, Caledonia's management costs continue to rise
substantially. Caledonia's performance is highly volatile and dependent on the
performance of a high-risk portfolio which is highly concentrated and lacks
The key points drawn by the boards of CC and CR from the compelling data
produced by Mercer are set out below:
1. Caledonia's performance is inconsistent. Measured by total return
(capital growth plus dividends), on the basis of its financial year (to 31
March) Caledonia underperformed the FTSE All Share Total Returns Index between
1988 and 1992, outperformed it in 1993 and 1994, underperformed it from 1995 to
2000, and has outperformed it since then. When measured on rolling 5-year and
10-year bases from 1 April 1988, Caledonia has underperformed the FTSE All Share
Total Returns Index approximately half the time. The overall picture, the boards
of CC and CR believe, is not superior performance in the short, medium and long
term as presented at Caledonia's last AGM and now on its website. The boards of
CC and CR believe much of the recent improvement in the Caledonia share price is
due to the pressure for change exerted by some shareholders and, latterly, the
publication by CC and CR of the Proposals for a restructuring of Caledonia.
2. The market has shown little faith in Caledonia's performance. The
discount of Caledonia's share price relative to net asset value - a measure of
the market's confidence in Caledonia's performance, management and liquidity -
was on a widening trend from 1995 to the end of 2002. It has fallen from about
30% to under 20% this year. The boards of CC and CR believe that this narrowing
of the discount owes much to recent changes - such as conversion to investment
trust status and splitting the roles of chairman and chief executive - which
supporters of the Proposals began to champion several years ago. Market
expectations of further reforms to Caledonia and the way it is run have also
influenced the discount. The boards of CC and CR believe that this discount will
widen again if proposals to further restructure Caledonia and CTC are not
3. Caledonia's dividend yield is below average and in the past two years
has not been covered by income generated. Although Caledonia's dividends have
risen for 36 consecutive years, in fact, Caledonia was yielding just 2.8% on its
share price and only 2.3% on its net asset value compared with 3.3% for the FTSE
All Share Index as at 23 September 2003. Moreover, Caledonia's dividends have
gone up in increments of only 1p a year since 1999. Even the recent small
increases in annual dividend in 2002 and 2003 have depended on dipping into
Caledonia's accumulated reserves. Clearly, this is not sustainable.
4. Caledonia's portfolio is high risk. The board of Caledonia claims to
run a medium risk portfolio with an eye on 'wealth creation over the long term'.
In fact, Caledonia's portfolio is disproportionately invested in two stocks
where Caledonia has no management control (by value, 22.7% in Close Brothers and
13.4% in Kerzner International), which together account for about 36% of
Caledonia's net asset value. Approximately 25% of the portfolio is also invested
in unquoted investments/companies. This over-concentration of, and lack of
liquidity in, more than 60% of net asset value would be more characteristic of a
high risk fund - from which investors would expect a much higher performance
than Caledonia has produced on any measure of total shareholder return.
Furthermore, in the 12 months to 23 September 2003, Close Brothers and Kerzner
International's share prices have experienced a swing of 82% and 91%
respectively whilst Caledonia's share price has suffered a 63% swing during this
same period (high of 973p; low of 595p). In October 2001, Caledonia was forced
to issue a profit warning (interim profit down 65%) with the poor performance at
Close Brothers cited as a principal reason. The value of shareholders'
investment in Caledonia and CTC is clearly very volatile and highly vulnerable
to the performance of only a few of its investments.
5. The cost of Caledonia's modest and erratic performance has rocketed.
Between the year ended 31 March 1998 and the year ended 31 March 2003 annual
management fees charged to Caledonia have soared from £6.1 million to £9
million, an average annual rate of increase of 8.1%. This generous treatment of
managers contrasted sharply with the fortunes of investors who, between the same
dates, saw Caledonia's closing net asset value fall. Investors are entitled to
ask whether they have received value for money in the management of their
investments and whether the distribution of benefits between management and
shareholders has been equitable and in the interest of the whole company.
The boards of CC and CR believe that this continuing rise in management fees is
not in the interest of Caledonia's shareholders. Why is it costing Caledonia
approximately 12.5p a share to yield a dividend of 26p when simply investing the
underlying assets with less risk in the FTSE All Share Index could yield 38p as
at 23 September 2003?
Caledonia and CTC have cited alleged long-term outperformance as a principal
reason for rejecting the Proposals. But Caledonia's investment record is notable
for long-term underachievement, volatility and inconsistency. The weight of the
evidence does not inspire confidence that Caledonia will be an adequate store of
value for future generations. Caledonia's investment management has not served
shareholders well. The boards of CC and CR believe the Proposals provide the
best opportunity for shareholders to maximise value, increase liquidity and give
shareholders greater choice between maximising cash proceeds and having the
opportunity to have a direct say in the investment of their assets. The boards
of CC and CR urge the board of Caledonia to seize the opportunity presented by
the Proposals to maximise shareholder value. The status quo is not an option.
Sir John Craven Caledonia Realisation Limited 020 7409 5649
Anthony Cardew CardewChancery 020 7930 0777
Phil Brown, Corporate Advisory Deutsche Bank 020 7545 8000
James Agnew, Corporate Broking
Elaine Bartleet, Press Office
Deutsche Bank AG London ('Deutsche Bank'), which is regulated by the Financial
Services Authority for the conduct of designated investment business in the UK,
is acting for CC and CR and no one else in connection with the Proposals and
will not be responsible to anyone other than CC and CR for providing the
protections afforded to clients of Deutsche Bank nor for providing advice in
connection with the Proposals or any other transaction or arrangement referred
Mercer Investment Consulting ('Mercer'), a division of Mercer Human Resource
Consulting Limited, is acting for CC and CR and no one else in connection with
the Proposals and will not be liable to anyone other than CC and CR for
providing the protections afforded to clients of Mercer, nor be responsible for
providing advice in connection with the Proposals or any other transaction or
arrangement referred to herein.
Expressions defined in the announcement by CC and CR made on 5 September 2003
bear the same meaning when used in this announcement.
This announcement does not constitute a firm intention to make an offer under
The City Code on Takeovers and Mergers ('The City Code') or an invitation to
purchase any securities.
1. Caledonia's performance relative to the FTSE All Share Index has been
calculated based on total return data drawn from Datastream for the period from
31 March 1988 to 4 July 2003. This data takes the form of total return indices
for both Caledonia and the FTSE All Share Index. Annual total shareholder
returns are calculated by dividing the index value at the date of measurement by
that which prevailed a year earlier. Similarly, rolling five-year and ten-year
returns are calculated in the same way but with the denominator being the value
five years or ten years prior to the calculation date respectively. These
returns are then annualised. The relative return is calculated by taking the
geometric difference between the annualised return calculated for Caledonia and
that for the FTSE All Share Index.
2. The discount at which Caledonia has traded relative to net asset value has
been calculated by subtracting the share price from the net asset value and
dividing this difference by the net asset value. The net asset value figure has
been drawn from the relevant Interim Report or Annual Report, adjusted where
subsequent restatements have been published. The share price has been obtained
3. The dividend yield has been drawn from Datastream. The dividend amount and
net asset value have been obtained from the relevant Annual Report, adjusted
where subsequent restatements have been published. The calculation of dividend
cover (i.e. dividends compared to profits after tax and minority interests) has
been based on the Profit and Loss Account in the relevant Annual Report.
4. Caledonia's exposure to Close Brothers and Kerzner International is as
stated in the Investor Presentation of 16 September 2003 on Caledonia's website.
The exposure to unlisted investments is drawn from the Annual Report for 2003.
Share price data has been sourced from Datastream.
Change from 52
Company 52 week low 52 week high week low ('swing')
Caledonia Investments plc 595.0p 972.5p 63%
Close Brothers plc 427.5p 777.5p 82%
Kerzner International US$18.8 US$35.9 91%
Source: Datastream and the Daily Official List (23 September 2003)
5. The management fees and net asset values have been drawn from the
Annual Reports to which they relate. The calculation of the management cost of
12.5p per share is based on the 2003 cost of managing the group's investment
operations (£9.0 million as per page 25 of the 2003 Annual Report) and the
weighted average number of ordinary shares in issue over the corresponding
period (72,133,756 as per page 57 of the 2003 Annual Report). The yield that
could have been earned had the underlying assets been invested in the FTSE All
Share Index is calculated based on the net asset value of 1,154p per share (as
per the Monthly Fact Sheet for August 2003) and the FTSE All Share Index
dividend yield as at 23 September 2003 (sourced from Datastream).
6. The reference to the profit warning by Caledonia is drawn from the
'Statement on the Forthcoming Interim Results' issued by Caledonia on 23 October
Save as referred to above, the source of all further information relating to
Caledonia or CTC in this announcement comprises public statements made by
Caledonia or documents sent to shareholders of Caledonia or CTC.
This information is provided by RNS
The company news service from the London Stock Exchange