Share Centre Takeover and Holding Unlisted Shares

This morning it was announced that the Share Centre (Share Plc: SHRE) were recommending a takeover bid from Antler Holdco, the holding company of Interactive Investor and the ii Group. This has two very negative consequences for private investors:

  1. The Share Centre is one of the favourite platforms for many private investors with an efficient and low-cost trading service and also a simple system to enable one to vote the shares you hold in their nominee accounts. There may well be some rationalistion of systems so the downside is that Share Centre clients may have to learn a new software platform.
  1. The other negative is for holders of Share Plc shares, which many clients of the Share Centre probably are because there is a discount on trading costs if you held shares. The share price has risen this morning, perhaps on the hope of a counter-bid, but the terms of the offer appear very unattractive. The offer is for 4.1 pence in cash, but the equivalent of 90% of the offer value is in shares in ii (that’s assuming you accept their valuation). The ii business is an unlisted company incorporated in Guernsey and is majority owned by J.C.Flowers IV L.P.
  1. The new ii shares to be issued as part of the offer will be definitely unlisted and hence holders of Share Plc shares will have no idea of when or how they will be able to sell them and they will lack almost all protection from being minority shareholders. Any investor who understands the legal position of holding unlisted securities with no shareholder agreement in place will realise this is a very invidious position to be in and I suggest shareholders will need to seriously consider whether they should sell the Share Plc shares in the market while they can. If in doubt take legal or other professional advice on the matter!
  1. Could the takeover bid be defeated? That seems very unlikely as they already have 70% of acceptances via irrevocable undertakings, including the holdings of Gavin Oldham and his family who was the founder. Winning a required 75% vote of shareholders (by number of shareholders) to defeat it at the Court Meeting (this is a Scheme of Arrangement proposal) would be very tricky as with many shareholders in nominee accounts they might only be counted as holding the “one share” held by the nominee operator as a pooled account. And that share would be in the power of the Share Centre and its management. Many people hate takeover bids via schemes of arrangement as they undermine the normal democratic process that applies to more normal takeovers.

Just to give readers some understanding of the problem of holding unlisted shares, I received some bad news this morning. I have been holding some shares in an unlisted company for 20 years. I was one of the founder investors as part of an EIS scheme and although I have sold some of the shares to other investors over the years I hoped to finally get out as it has been somewhat of a rocky road. That looked like it might happen after the business received an offer a couple of months ago but the bad news today is that the deal of off.

I’ll have to live in hope a bit longer it seems.

P.S. The offer document actually says that the Share Centre clients will be migrated to the Interactive Investor Services platform. Let us hope it goes smoothly.

Note that some investors might have held Share Plc shares as clients of the company so that they could easily monitor the financial position of their broker. That is somewhat critical because of the danger of holding shares in any broker that gets into financial difficulties where your shares are held in nominee accounts. That will no longer be easily possible after this takeover.

Note also that  I am advised that at the court meeting for a Scheme of Arrangement 75% of SHARES need to be voted in favour for the scheme for it to pass AND a simple majority of SHAREHOLDERS.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Brexit – Over and Out – and Why Shareholder Votes Matter

Last night Brexit got done. We exited the EU after 47 years. Our last words to the EU bureaucrats were surely “over and out”. But we will need to resume the conversation to secure a trade deal. That still leaves room for many more arguments within the UK and with the EU.

Some people seem to think that there is a hope we might rejoin the EU some time in the future. But while the EU is dominated by bureaucrats and real democracy is so lacking in the EU institutions that seems exceedingly unlikely to me. Hope of any reform to the EU is surely forlorn.

It might be preferable to have some alignment on product and financial regulations but in the latter area the EU either follows well behind the UK anyway, or creates regulations like MIFID II that are over complex or simply incomprehensible.

One area that the EU could have been a leader in was to improve financial regulation such as on shareholder rights. They have produced a Shareholder Rights Directive but it is so badly written that it can and is being effectively ignored in the UK. Just take the area of shareholder voting and the problem of nominee accounts.

The Investors Chronicle (IC) have published an article by Mary McDougall this week entitled “Why Shareholder Votes Matter”. It shows how the nominee account system has disenfranchised most individual shareholders as they either cannot vote their shares, or it is made so difficult to do that they don’t bother.

I contributed to the IC article because I have a lot of knowledge of this area having pioneered the ShareSoc campaign on the issue and having experience of using multiple platforms over many years (see https://www.sharesoc.org/campaigns/shareholder-rights-campaign/ ).

The article mentions Sirius Minerals (SXX) which is currently subject to a takeover bid via a scheme of arrangement. A very large proportion of the shares are held by individual investors in nominee accounts but because of the voting rules on Court hearings all of them will only get one vote by the nominee operator who might not even vote at all. That’s because nominee accounts are generally “pooled” with only one name on the share register as a “Member” of the company – and that name is that of the nominee operator (i.e. the platform).

Another example that shows where votes are important is that of the forthcoming AGM scheduled for the 12th February at RWS Holdings (RWS), an AIM company. You might think that this will be a routine matter with just the standard resolutions. But not so. There is actually a resolution to waive the need for a Concert Party that might acquire more than 30% of the shares to make an offer for the company under the City Takeover Code. The Concert Party comprises Chairman Andrew Brode, Diane Brode and a Trust they control. They already hold 32.8% of the shares but as there is also a share buyback resolution that might increase their holdings, and hence trigger the need for an offer, a waiver is required. I voted against both resolutions – I always vote against share buy-backs unless there are very good reasons, and I don’t like public companies to have shareholders with more than 30%.

You can see that just a few private shareholders in nominee accounts might affect the outcome as the Concert Party cannot vote on the waiver. But will they?

Regardless I encourage shareholders in RWS to vote their shares – if you hold shares in an ISA your platform operator has a legal obligation to cast your votes.

The IC article mentions that the Law Commission is currently looking at the problems and legal uncertainties created by nominee accounts, but it also discloses that they only expect a “scoping study” on intermediated securities to be published in Autumn 2020. No great urgency there then!

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Woodford and Hargreaves Lansdown, Rosslyn Data AGM and Brexit

To follow up on my previous blog post over the collapse of Woodford Investment Management and how to avoid dud managers, the focus has now turned in the national media upon Hargreaves Lansdown (HL.). Investors who have lost a lot of money, and now won’t be able to get their cash out for some time, are looking for who to blame. Neil Woodford is one of course, but what about investment platforms such HL?

The Woodford Equity Income Fund was on the HL “best buy” list for a long time – indeed long after its poor performance was evident. They claimed at a Treasury Committee that Woodford had displayed similar underperformance in the past and had bounced back. But that was when he had a very different investment strategy so far as one can deduce.

The big issue though that the Financial Conduct Authority (FCA) should be looking at is the issue of platforms favouring funds that give financial incentives – in this case via providing a discount to investors and hence possibly generating more revenue when better performing funds such as Fundsmith refused to do so. HL have not recommended Fundsmith in the past, despite it being one of the top performing funds.

It is surely not sensible for fund platforms to be recommending funds unless they have no financial interest in the matter whatsoever. Indeed I would suggest the simple solution is for platforms to be banned from recommending any funds or trusts, thus forcing the investor to both get educated and make up their own minds. Such a rule might spawn a new group of independent retail investor advisors which would be surely to the good.

Today I attended the Annual General Meeting of Rosslyn  Data Technologies (RDT). This is an IT company that I bought a few shares in a couple of years ago as an EIS investment. It was loss-making then, and still is but is getting near break-even.

There were only about half a dozen shareholders present, but they had lots of questions. I only cover the important ones here. New Chairman James Appleby chaired the meeting reasonably well, but left most of the question answering to others.

Why did company founder Charles Clark step down (as announced today)? Reason given was that he had set up another company where there was  a potential conflict of interest.

I asked about the Landon acquisition that was announced in September. How much revenue would this add?  They are not sure but maybe £0.5 million. Bearing in mind they only paid £48,750 for the assets and client list from the administrator, that seems to be me a remarkably good deal. But it later transpired that they have outstanding contracts (pre-paid) which they have to finish so that might be another £250,000 of costs. However, that’s still cheap and by rationalising some of the costs they should quickly turn Langdon profitable. It was suggested that Langdon had been mismanaged with over-expansion and too many staff which is why it went bust – only a few of the staff have been taken on. Note that the impact of this acquisition is not yet in broker’s forecasts.

It was noted that RDT is currently broadly on track for analysts forecasts but it has been a slow start to the year. Deals are slipping into the second half. Decision timescales in major corporates seem to be stretching out at present.

One shareholder, who said “I am talking too much – a daft old man”, which it is difficult to disagree with as he asked numerous questions, some not very intelligent, asked whether they were charging enough for their services. There was a long debate on that issue, but it was explained that competitors were charging less.

There were also concerns about the slow rate of revenue growth (only 8.3% last year). Comment: this company is clearly not operating in a hot, high-growth sector of the market. But it does seem to be competently managed and if they can do acquisitions like Langdon that are complementary then profits should grow.

Altogether a useful AGM.

Brexit has of course made many UK companies nervous about new projects. At the time of writing the latest position appears to be that the EU and Boris have agreed a deal. Most Conservatives like it, but the DUP does not and Labour, LibDems and SNP will all seem likey to vote against it in Parliament. The last group all seem to be playing politics to get what they individually want, but not a general election which on current opinion polls might result in a big Conservative majority. Most people are very frustrated that this group are blocking support of Brexit so we can close down the issue and move on when there seems to be no overall public support for another referendum or cancelling Brexit altogether.

But even given this messy situation, I am hopeful that it will be resolved in one way or the other soon. But then I am the perpetual optimist. I am investing accordingly.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Offer for Share Centre Canned and Changes at Charles Stanley

Interactive Investor Services have announced they do not intend to make an offer for the Share Centre (Share Plc – SHRE) as previously mooted. That’s probably a relief for users of that platform.

But users of the Charles Stanley (CAY) broking services may have concerns as the company announced this morning that they are going to simplify and standardise their service to cut costs and improve the service to clients. Some staff will be cut but the impact on customers is not yet clear.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Missing Dividends and the Small Claims Court

There is an interesting article in today’s FTMoney supplement about the merits of pursuing claims using the small claims court versus the financial ombudsman. The former seems to be both quicker and more effective from the comments of FT readers. My own experience of using the small claims court a few years ago was likewise positive. I complained about a headboard delivery from Dreams and after some lengthy correspondence I filed a claim in court, which is very simple to do electronically, and promptly received a response from their finance director resolving the issue. A letter from a court clearly grabs attention. To show there was no hard feelings as a result we recently ordered two new beds from Dreams and are totally satisfied with both them and the delivery process.

I mentioned the problem of missing dividends on a company held in two different ISAs back in November – see https://roliscon.blog/2018/11/21/missing-dividends/ . They have still not arrived. I could complain to the Financial Ombudsman but it might prove to be best to file a claim in the small claims court instead. I’ll give the ISA suppliers a final warning before doing so but I am certainly losing my patience over the matter.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Too Much Cash, Wey Education and Patisserie Accounts

Are you stacked up with cash in your ISAs, SIPPs, and direct portfolios? As a dedicated follower of fashion (if the markets are falling as investors sell, then so do I) it is of some concern that the cash is not earning any interest. There was some relatively good news yesterday from soon to be listed A.J.Bell Youinvest. They are increasing the interest they pay on cash held in portfolios. Previously you got 0.05% on balances more than £50,000. It will now be 0.10% above £10,000, 0.15% above £50,000 and 0.25% above £100,000 on SIPPs and similar increases on ISAs and dealing accounts.

But that is still really quite paltry and still not good enough when you can get over 0.2% on even High Street bank deposit accounts and Goldman Sach’s Marcus account is offering 1.5%. Youinvest and other platforms must try harder I suggest to offer fair interest rates. In the meantime, the only option for investors is to take the cash out and deposit it elsewhere or spend it. But moving cash out of ISAs and SIPPs can make it difficult to put back in. The rules on such accounts should surely be changed to permit that more generally because at present it is “anti-competitive”. One option is to transfer your ISA or SIPP to another provider who does provide a better rate of interest on cash holdings, but that is such a tortuous and expensive process at present that it’s not really very practical to do so – at least the FCA is looking at that issue.

Why are investors selling? Apart from panics in certain stocks and sectors, such as the FAANG technology stocks in the USA, the political uncertainty in the UK is surely simply causing investors to take their money off the table. Folks are getting nervous. Reducing exposure to stocks likely to be hit by a hard Brexit or by the risk of a General Election and Labour taking power is a completely rational move. Private investors can do this quite easily while institutional investors apart from hedge funds can be more limited in their ability to do so. Investors in funds don’t like their funds to be holding large amounts of cash and the manager cannot easily move in and out of holdings in size without finding prices move against them.

Wey Education (WEY) is an AIM listed provider of on-line education. It has big ambitions but this morning the company announced that Executive Chairman David Massie has resigned with immediate effect. The cause is continuing health problems after major heart surgery. They also reported trading as “strong” but this will clearly be a major disruption in the short term as Mr Massie was undoubtedly the driving force behind the business of late. It rather highlights the danger of having an Executive Chairman in a company rather than a more conventional board structure. The share price is down 11% at the time of writing. This was one of my “experimental” small holdings where the picture has simply not developed as I hoped – that’s apart from the latest news. One concern here is that the company did not announce the fact that Mr Massie was only working part-time because of his health problems recently – surely this is “price-sensitive” information that should have been issued?

The Financial Reporting Council (FRC) have announced an investigation into the audit of the last 3 years accounts of Patisserie Holdings (CAKE) by Grant Thornton. They are also looking into the preparation of the financial statements by the former CFO. With the Serious Fraud Office (SFO) and the FCA also involved, the management of the company are going to be spending a lot of time talking to investigators. Let us hope that does not detract too much from putting the company back on a sound basis.

Patisserie has also been accused of failing to declare LTIP share awards to executives including the former CFO. Will there be action on that matter? I wrote a previous blog article on how they do things differently in the USA after the conviction of a former Autonomy executive for fraud – see https://roliscon.blog/2018/05/02/they-do-things-differently-in-the-usa/ . They also do things differently in Japan where Carlos Ghosn, Chairman of Nissan, has been arrested for misreporting his pay. Allegedly he actually received over $88 million over the last five years but only half was reported in their accounts. It is surely true that the UK is really quite “soft” on corporate misdemeanors of all kinds when it should be a lot tougher.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Alliance Trust Savings Sold

Alliance Trust (ATST) has sold its Alliance Trust Savings (ATS) subsidiary to privately-owned company Interactive Investor. The ATS investment platform was always a peculiar business for a traditional investment trust to be holding. It was also consistently loss-making and reported an operating loss of £19.3 million in 2017 after a big write down of intangible assets. The directors valued the ATS business at £38.3 million in the 2017 accounts and Interactive Investor are paying £40 million for it but it looks like they are getting the Dundee offices of ATS valued at £4.9 million in addition.

The ATS business will continue to operate from Dundee as will Alliance Trust itself. But there will presumably be some rationalisation of IT systems in due course so clients of ATS may need to learn new software eventually. Charges might also presumably be harmonised also. Interactive Investor charge a fixed quarterly fee of £22.50 which covers some trading fees. Otherwise trading charges are £10 per trade, or less for frequent traders. This structure means that charges do not rise as your portfolio grows and is particularly well liked by those with larger portfolios.

The disposal of ATS was always on the cards after the revolution and board changes a couple of years ago at Alliance Trust. This looks a good deal for both Alliance Trust and users of the ATS platform. It completes the dismantling of the empire built by former CEO Katherine Garrett-Cox.

It is also another step in the consolidation of the “investment platforms” market which is certainly a trend as a lot of them aren’t making much in the way of profits at present (other than Hargreaves Lansdown covered in the previous blog post).

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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