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Outfoxing the fox

21 October 2015 By Robert Cole

Electra should shoot Edward Bramson’s fox. The private equity investment trust is in open conflict with its near-30 percent shareholder. Sherborne – the fund with Bramson at its head – wants two board seats. Electra hates the very idea.

It is a tricky one. Roger Yates, the Electra chairman, thinks Bramson is not suitable board material, because his complaints about the company show “wilful ignorance”. The interloper has had time to learn. Sherborne has been on the share register for nearly two years and has publicly outlined its disquiet on several occasions. There has been private contact between the two sides as well.

The arguments are quite some way from being convincing. Bramson has suggested that more effective management of the companies in Electra’s investment portfolio could double their value, but he has provided little evidence to support the claim.

Sherborne also has questioned the close relationship between the board of Electra, the quoted company, and Electra Partners, the fund manager. A greater separation might be more in line with current best practice. However, the current system seems to be working, to judge by impressive fund performance numbers trotted out by the board on Oct. 21.

Still, by rebuffing Sherborne out of hand, Electra’s board may be increasing the chance its opponent prevails. Simple shareholder mathematics suggests Sherborne could win the vote, scheduled for Nov. 5. It will come very close if the total shareholder turnout is around the same as in last year’s similar tussle and Sherborne gets a similar 10 percentage points of additional support from other shareholders.

It may be embarrassing for Yates et al to change course. But a pre-vote surrender would give Sherborne just two of eight board seats, about commensurate with its shareholding. That is enough to have some influence, but the old board majority could still keep the activist in check.

If Sherborne wins a contested vote, it is likely to take overall control, perhaps making Bramson chairman. Some or all of the current directors would find their positions untenable.

Electra’s incumbents can compromise now. That would ensure they escape a total, humiliating and unnecessary defeat.

 

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