Caledonia Realisation & Cayzer Cont
30 September 2003
30 September 2003
Not for release, publication or distribution in or into the United States,
Canada, Australia or Japan
Extraordinary General Meeting ('EGM') of The Cayzer Trust Company Limited
to be held on Thursday, 2 October 2003
Attached is the text of a letter sent to CTC shareholders by the boards of CC
and CR yesterday. The boards of CC and CR also commented earlier today:
'The result of the CTC EGM on 2 October 2003 appears to be a foregone conclusion
because a hand full of individuals that control CTC continue to ignore the
minority. In any case, the EGM resolution is irrelevant. A major element of our
proposals is reform of the governance and investment strategy of Caledonia. Why
is CTC, a private company, voting on the future of Caledonia, a public company
in which it only has a minority interest?'
'It seems that the board of CTC has yet again chosen to ignore the legitimate
interests of both a significant group of CTC shareholders and a significant
proportion of Caledonia's institutional shareholders (who together represent
approximately 29% of the underlying value) who believe the status quo is not an
option. The board of CTC who are not the owners of the company will have
achieved a hollow victory but again missed an opportunity to engage with us to
reconcile differences and seek a solution to this deadlock. The board of CTC has
singularly failed to move this situation forward.'
'We say again that we are happy to work with CTC to draw up alternative
proposals that represent a sensible solution to this continuing impasse. Only by
entering into such a dialogue with us will the inherent problems and issues that
the CTC/Caledonia structure raise be addressed. These problems will continue as
long as the board of CTC continues to perpetuate its web of voting control to
maintain an intransigent and outdated position.'
Sir John Craven Caledonia Realisation Limited 020 7409 5649
Cayzer Continuation Limited
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.
The full text of the letter to CTC shareholders is as follows:
'This letter is written to you on behalf of the boards of Cayzer Continuation
Limited ('CC') and Caledonia Realisation Limited ('CR') in advance of the EGM of
The Cayzer Trust Company Limited ('CTC' or 'Cayzer Trust') which is to be held
on 2 October 2003.
Shareholders are being asked to endorse the decision of the board of CTC to
dismiss the proposals put forward in our letter of 5 September 2003 ('the
Proposals') without further discussion with us. The resolution to achieve this
will almost certainly be passed by a majority of the votes cast at the EGM
(given the way in which the voting interests in CTC are organised). This will
The legitimate grievances of the minority shareholders in CTC will not have been
resolved in any way. Furthermore, the views of a significant proportion of the
institutional shareholders of Caledonia Investments plc ('Caledonia'), who have
expressed support for our Proposals and informed the board of Caledonia that a
continuation of the status quo in the CTC/Caledonia structure is not an option,
will have gone unheeded.
Long-suffering shareholders in both companies can therefore expect that this EGM
will not bring to a close this unsatisfactory chapter in the affairs of the
family or resolve the shortcomings in their investments in CTC. In the meantime,
Caledonia will continue to suffer, as its fundamental raison d'etre is
undermined by the internal conflicts to which it is subject, as is so eloquently
argued by Anthony Hilton in his article in the Evening Standard on 25 September
As has been pointed out by Schroders and Hermes in their letters to you, there
are shortcomings in the corporate governance of the CTC/Caledonia structure
which are inevitably going to require a significant reduction in the degree of
CTC board control over the board and business of Caledonia. The CTC board will
inevitably find the present arrangements increasingly difficult to explain to
the shareholders and regulators of Caledonia.
In our letter of 5 September 2003, in which we first put forward our Proposals
publicly for your consideration (having been unable to persuade your board to
engage in any discussion of the Proposals), we made it clear that we believed
there could be scope for improving on the Proposals in the light of information
available only to your board. We also made clear our preference for the
Proposals, or a variant of them, to be embraced by your board and implemented by
them rather than by ourselves. This remains our position.
There are a number of ways in which our Proposals could be refined to respond to
concerns that have been expressed; and there are doubtless others that would
emerge in a constructive dialogue with a common purpose between the various
groups and their advisers. It is quite clear that changes could be made with
ease and speed to address the concerns which the institutional shareholders of
Caledonia have about the corporate governance arrangements in the CTC/Caledonia
structure. The board of CTC should welcome rather than resist such improvements.
We, the Cayzer-Rotherwick Group and, we believe, a significant proportion of the
institutional shareholders of Caledonia, have all sought for months to engage in
serious, confidential and constructive discussion with your board and/or the
board of Caledonia to resolve the situation once and for all and have repeatedly
offered to do so. It is only the intransigence of your board and their web of
control that, we believe, stands in the way of a sensible solution.
We urge you to put the EGM to some good use by demanding that your board enter
immediately into constructive discussions with the Cayzer-Rotherwick Group and
the institutional shareholders of Caledonia. With a clearly articulated common
purpose and good will on all sides, it should be perfectly possible for an
agreed set of recommendations to emerge within at most three months and in the
meantime public comment should be kept to a minimum. These discussions must be
without pre-conditions as to the outcome, as a solution will require some
concessions on all sides.
Attached to this letter you will find a summary of the issues before you, which
you may find helpful for the forthcoming EGM.
Sir John Craven
Summary of the Issues
The Fundamental Issue
The fundamental issue dividing the family is the current structure of CTC/
This means that if shareholders wish to exit or redeploy their assets in a
different way, they can only do so in a manner that is highly prejudicial to
their interests and gratuitously advantageous to remaining shareholders. In the
latest offer put to the Cayzer-Rotherwick Group, the board of Cayzer Trust
effectively invited them to surrender some 24% of the value of their shares to
the remaining shareholders. This is the same as making a gift of £18.5 million
which cannot, on any basis, be considered equitable or fair.
Furthermore, because of the CTC/Caledonia structure, any minority shareholders
(however substantial their holding) are effectively disenfranchised from being
able to exercise any control over the 'economic interest' that they have in the
underlying assets of Caledonia. The Cayzer-Rotherwick Group are effectively
compelled to follow the views laid down by the controlling group at CTC with
regard to the investment of that underlying interest. Equally, despite their
significant shareholding, they are excluded from all management decisions at the
CTC and Caledonia levels.
The key objectives of the Proposals seek to address these issues and:
- ensure value maximisation for the shareholders of CTC and Caledonia;
- eliminate the substantial discount to net asset value ('NAV') at which
CTC's shares have historically traded; and
- give the ultimate beneficiaries of the underlying assets in Caledonia
control over how they are invested.
What the Board do not say
Peter Buckley, in his letter of 15 September 2003, recommends rejection of the
Proposals but he fails adequately to answer important questions as to why the
board of Cayzer Trust makes such a recommendation.
• We believe that the Proposals, if implemented, would largely eliminate
the discounts that apply to the assets of Cayzer Trust. Given the board's
- on what grounds have they rejected them?
- what proposals do they have to properly invest the
company's assets to fully reflect their underlying value?
• The Proposals would eliminate the tax liability that would arise for
the Cayzer Trust on a disposal of its holding of Caledonia shares, estimated to
represent a substantial proportion of the £40 million currently provided in the
latest Cayzer Trust accounts, and a potential future liability that will
increase by 30p on every £1 that the net assets of the company increase. This
liability (which has increased since the last annual report) arises as Cayzer
Trust pays tax on any capital gains arising on its investments. Given the
board's fiduciary duties,
- is it in shareholders' interests to maintain a fiscally
inefficient corporate structure?
- what proposals do they have to eliminate this liability?
• The Proposals would allow all shareholders either to exit at or close
to NAV or reinvest their capital. They would give each shareholder a significant
uplift in value as compared with the offer of the board in July 2002. In those
- why should shareholders who wish to withdraw their
capital do so in a way that is so prejudicial to their
interests and is so markedly to the advantage of those
• The Proposals would allow those shareholders (large or small) who wish
to remain invested in Cayzer Continuation Limited access to first class
investment advice and the opportunity to invest in a way that suits their
individual circumstances in a broad range of asset classes which spreads risk
and would allow them to choose an investment policy most suited to their needs
and aspirations. Given that, where the board acts as trustee, it has a fiduciary
duty to spread risk and maximise return,
- can the board please explain why this is not in the
shareholders' and beneficiaries' interests?
The Performance of Caledonia
The board of Cayzer Trust makes great play on the long-term outperformance of
Caledonia. The boards of Cayzer Continuation Limited and Caledonia Realisation
Limited have challenged this view in an announcement made on 24 September 2003:
'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, 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 liquidity.'
1. The Performance of Cayzer Trust
It is understood that a large number of shareholders of Cayzer Trust place great
importance on the dividend income they derive from their shares. The boards of
CC and CR asked Mercer Investment Consulting to analyse what income shareholders
could have expected if the underlying assets of the company were realised and
You will see from the table below that since 1989, the yield has significantly
under performed the dividend yield derived from the FTSE All Share Index.
This means that, for example, had the assets been invested in the FTSE All Share
Index, an Ordinary Shareholder would have received £5.32 as opposed to £3.88 and
a Preferred Ordinary Shareholder £0.32 as opposed to £0.23 as paid by Cayzer
Trust for the financial year ended 31 March 2002 (which is the most recent
period for which dividends have been declared).
Ordinary Preferred Ordinary FTSE All
Shares Shares Share Index Dividend Yield (%)
Dividend Yield (%) Dividend Yield (%)
1989 1.44 3.70 4.19
1990 1.49 3.35 4.74
1991 1.84 3.31 4.77
1992 2.18 3.57 5.04
1993 2.05 3.75 4.13
1994 1.76 2.59 3.76
1995 2.03 2.70 4.15
1996 1.87 2.19 3.86
1997 2.14 2.13 3.64
1998 1.72 1.72 2.36
1999 2.11 2.11 2.34
2000 1.74 1.74 2.11
2001 1.85 1.85 2.53
2002 1.94 1.94 2.66
Note: The basis on which the dividend yield has been calculated is set out at
the end of this letter
2. What the Board has said
Peter Buckley, in his letter of 15 September 2003, identifies a number of
perceived objections to the Proposals. No attempt has been made to investigate
whether these perceived objections are valid or whether through discussion could
be mitigated or resolved. These misperceptions are:
• The letter states that Cayzer Continuation Limited would not be a
Cayzer family business. This is not correct.
- The Cayzer family would control a minimum of 65% (and could
control up to 100%) of Cayzer Continuation, depending on elections by
other shareholders, and would have board representation.
- Cayzer Investment Management Limited, which would be
responsible for the management of the assets in much the same way as
Caledonia currently is, would be largely owned by the Cayzer Family.
The Proposals state 'The board of directors will consist of a Chief
Executive Officer with the balance of the board to include independents
and members of the Cayzer family.'
- As was stated to Peter Buckley, including when he received
the Proposals on 10 June 2003, and as repeated in the letter to you of
5 September 2003, it is open to the board of Cayzer Trust to implement
these Proposals subject to satisfactory safeguards.
• The letter claims that the Proposals would lead to substantially
higher income tax charges on dividend income for Cayzer family members resident
in the UK. This simplifies and misrepresents the position.
- Individuals and trusts pay UK tax at the same rate on income from all
classes of assets whether arising from a UK company or an off-shore
company, with the exception of dividends from UK companies.
- The Proposals envisage a special dividend equivalent to one year's
dividend to protect the income of shareholders during the transition
- Each shareholder would be free to choose a mix of asset classes to
provide the correct balance of income and capital growth.
- Peter Buckley's letter of 15 September 2003 ignores the advantage
that shareholders would have in being able to switch asset classes
without any charge to Capital Gains Tax.
• The letter states that an 'astonishing £29 million' is the
estimated cost of the exercise. The boards of CC and CR disclosed this figure to
be open and transparent about the costs of the Proposals. Peter Buckley's
statement ignores the fact that:
- The estimated net cost of the Proposals over two years, compared to
Caledonia's current annual running costs of £9 million, is £11 million;
- Of the 'net cost' of £11 million, £5 million would be paid to
incentivise those employees (which would include some of the Caledonia
employees and directors) engaged in maximising value during the
realisation process; it would be tied to realising at least 95% of NAV,
something that the boards of both Caledonia and Cayzer Trust have said
they are incapable of doing; and
- Compared to the current discount in value of £170 million(1) that the
Proposals are designed to eliminate for the benefit of all shareholders
in CTC and Caledonia, the net cost of £11 million is not significant.
The Financial Times (6 September 2003) made a key observation in this
'The cost over two years, including pay and incentives, will be
£29m. That is not huge alongside the £160m discount to NAV at which the
company trades, or the estimated annual running cost of £9m a year for
the existing operations'.
What CTC shareholders may find 'astonishing', however, is that the
Chairman of Caledonia, who receives £511,000 in total remuneration,
receives 25 times the average total remuneration
(approximately £21,000) of other chairmen in the AITC Global Growth
Index, Caledonia's latest comparator for performance.This truly is
CTC shareholders should also consider the remuneration packages of
other Caledonia board members and question whether this largesse is
warranted by the performance of the individuals or their
Sir David Kinloch Deputy CEO £467,000
Tim Ingram Chief Executive Officer £398,000
Jonathan Cartwright Finance Director £348,000
The Hon. Charles Cayzer Executive Director £249,000
Source: Caledonia's 2003 Annual Report
• The letter claims that the Proposals ignore the charges which would be
incurred by contracting out the management of available funds to outside
managers. Not true.
- Cayzer Trust already bears its share of the cost of running
Caledonia, which in the year to 31 March 2003 equated to some 1.2% of
- In addition, shareholders currently bear the cost of running Cayzer
Trust. No applicable data has been made available since Cayzer Trust
was obliged to separate its activities from those of Caledonia.
However, it is expected that a considerable saving on these costs will
• Statements have apparently been made by directors of Cayzer Trust to
shareholders that offshore companies bear a risk of being brought into the UK
tax net. Our tax advisers are unaware of any such proposal.
The board of Cayzer Trust has rejected proposals which independent commentators,
such as Winterflood Securities (whose ultimate parent company is Close Brothers)
have described as 'comprehensive and well thought out' without discussion. One
has to ask why? One answer to this is that the board of Cayzer Trust may be
conflicted and unable to act in shareholders' interests. This is because the
interrelationship between Cayzer Trust and Caledonia gives rise to significant
conflicts of interest on the part of several of the directors of each company.
• Peter Buckley, Charles Cayzer and Michael Wyatt all serve on the board
• John Mehrtens and Dominic Gibbs are former employees of Caledonia.
• Peter Davies is Peter Buckley's lawyer.
• Michael Wyatt's son, William, works as an associate Director of
• Elizabeth Gilmour's nephew, Jamie, works as an associate Director of
• Peter Buckley, as Chairman of Caledonia, has a contract with no fixed
retirement date. In the last accounts of Caledonia, he was paid £511,000 under
• Charles Cayzer, as a director of Caledonia, has a contract with
Caledonia under which he was paid £249,000 in the last accounts of Caledonia.
In arriving at the recommendation, did those members of the board who are
conflicted, absent themselves from this decision?
Notes and Basis of Calculation
1. The contents of this letter for which the boards of Caledonia Realisation
Limited ('CR') and Cayzer Continuation Limited ('CC') are responsible, have been
approved by Deutsche Bank AG London ('Deutsche Bank') solely for the purpose of
Section 21 of the Financial Services and Markets Act 2000.
2. 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 referred to in this letter and
will not be responsible to anyone other than CC and CR for providing the
protections afforded to clients of Deutsche Bank or for providing advice in
connection with the Proposals or any other transaction or arrangement referred
3. 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.
4. Each of Deutsche Bank and Mercer has given and not withdrawn its consent
to the references to themselves in this letter in the form and content in which
Basis of calculation of dividend yield:
1. The value assessed for the Ordinary Shares and Preferred Ordinary Shares
has been arrived at in a three stage process. Each stage has lead to the
calculation of a specific measure, which is then converted into a value per
share. These are MONAV, CANAV and CANAV*.
2. The MONAV (Market Overlay Net Asset Value) is calculated as follows (as
specified in Appendix 6 to the notice calling the Extraordinary General Meeting
(EGM) dated 5 July 2002):
Fixed Assets (i.e. Caledonia Shares, Other Listed Assets and Unlisted
Assets) + Current Assets (i.e. Short-Term Deposits, Dividends
Receivable and Other Assets/Debtors)
- Current Liabilities (i.e. Dividends Payable and Other Creditors/
- Specified Adjustments (i.e. Latent Capital Gains Tax Liability,
Expenses and Accrued Dividends)
= Adjusted MONAV ('MONAV')
3. The value of the Fixed and Current Assets, Current Liabilities and the
Latent Capital Gains Tax Liability have been drawn from the relevant Financial
Statements. Fixed Assets are valued at market value for the purposes of this
letter unless otherwise stated. The value of the Caledonia Shares is based on
the actual number of shares held from 2000 onwards. Prior to this, the CTC's
percentage holding in Caledonia, to two decimal points as published in the
Financial Statements, is applied to the number of Caledonia shares in issue,
rounded to the nearest unit in thousands as set out in Caledonia's Annual
Reports. It should be noted that the Unlisted Assets are valued at book cost for
the financial years of 1990 - 1995 as the book costs are the only figures
published during this period.
4. The allowance for expenses has been based on the Expense Ratio (i.e. the
ratio of 'expenses relating to the transaction' divided by the 'total assets
less current liabilities' - which amounts to 0.16%) set out in Appendix 6 of the
EGM Notice. The Expense Ratio has been applied to the 'total assets less current
liabilities' at each of the calculation dates.
5. The Accrued Dividends adjustment allows for the accrual of the preferred
dividends on the Preferred Ordinary Shares in accordance with the rights of this
class. If the calculation of MONAV takes place at the end of the financial year,
once the dividend has been declared, this amounts to zero. However, should MONAV
be calculated at a date other than 31 March, this item has a value.
6. The Caledonia Adjusted Net Asset Value (CANAV) basis builds on the MONAV
basis. An adjustment is made for the discount at which Caledonia trades relative
to its NAV, which is based on the market value of the underlying investments (a
figure first published in 1998. The book value of investments, giving a net
asset value equal to Shareholders' Funds is used prior to this.).
7. The CANAV basis seeks to capture all the capital tied up in the CTC
structure, a portion of which is hidden by discounts at both the Caledonia level
and the CTC level. It is possible to calculate the discount at the Caledonia
level based on published information. This same analysis is more difficult for
the CTC due to the unlisted nature of many of its investments, although these
make up a minority of the CTC's published value. The basis on which these
unlisted investments are valued is not clear, except for the period when book
values only were published. Consequently, the ability to perform meaningful
analysis of the performance of these investments is limited.
8. The CANAV is calculated as follows:
Adjusted MONAV ('MONAV') (as per 2 above)
+ Net Asset Value of Caledonia shares held
- Market Value of Caledonia shares held
9. The Net Asset Values of the Caledonia shares are drawn from the
relevant Caledonia Annual Report.
10. We have calculated a further measure based on CANAV but adding back the
full value of the Latent Capital Gains Tax Liability. This reflects the value of
the underlying assets should the CTC be liquidated in such a manner that this
liability is avoided. We refer to this measure as CANAV*.
11. The CANAV* is allocated in the proportions of 47.79% of CANAV* to Ordinary
Shareholders and 52.21% to Preferred Ordinary Shareholders. The CANAV* per share
is arrived at by dividing the CANAV* attributed to each class by the number of
shares in issue (840,919 Ordinary shares and 15,500,000 Preferred Ordinary
Shares. There were 16,000,000 Preferred Ordinary Shares in issue from 1988 to
December 1992, when 500,000 were bought back for £1,425,000 and subsequently
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.
(1) Assuming a Caledonia share price of 919p per share, NAV of 1154p per share
and total shares outstanding of 72.61 million
This information is provided by RNS
The company news service from the London Stock Exchange