RNS Number:9852U
Intrinsic Value PLC
4 February 2004
To: City Editors
Embargoed until 7:30am, Wednesday 4 February 2004
INTRINSIC VALUE PLC
The Board of Intrinsic Value advises Shareholders to reject the EGM Resolutions
The Board of Intrinsic Value has today posted a circular to Shareholders
advising them to vote against Resolutions proposed for an Extraordinary General
Meeting requisitioned for 17 February 2004.
The Resolutions proposed by Laxey Partners, which has recently built up a 19.25%
holding in the company, seek to replace two of the current Directors (including
the Chairman) with three Laxey nominees, of which two are Laxey directors. This,
in effect, would give Laxey control of the Board.
The Board also says that, in the present circumstances, it intends to move
towards an orderly liquidation of Intrinsic Value, overseen by the current fund
managers, in order to return cash to Shareholders, regardless of the outcome of
the EGM.
James West, Chairman of Intrinsic Value, said: "We believe that the EGM is a
clear attempt by one group of shareholders to take control of the company for
their own ends. The Board is determined to safeguard the interests of all
Shareholders.
"Despite the excellent investment performance of the fund of late, acknowledged
by the recent Investment Trusts magazine's "Best Small Companies Trust Award
2003", we recognise that a substantial percentage of Shareholders have indicated
that they would prefer to realise their investment. We will therefore, in the
present circumstances, be proposing an orderly liquidation of the Company.
Regretfully, we have come to the conclusion that it is not possible to
accommodate both those shareholders who seek a cash exit and those who want to
see the trust continue as an investment vehicle."
Enquiries
Intrinsic Value 020 7767 1000
James West
Chairman
ING Investment Banking 020 7767 1000
Nicholas Gold
William Marle
Powerscourt PR 020 7236 5630
John Murray
INTRINSIC VALUE PLC
The following is extracted from the Circular to Shareholders despatched today.
Introduction
On 21 January 2004 the Board of Intrinsic Value plc announced that an
Extraordinary General Meeting had been convened for 12 noon on 17 February 2004.
This meeting was convened to vote on the Resolutions proposed by Laxey Partners,
as detailed in the notice to Shareholders posted on 20 January 2004. If passed
in their entirety, the effect of the Resolutions would be to transfer control of
the Company's Board to a Shareholder who holds only 19.25% of the Company's
Shares, Laxey Partners.
The purpose of the Company's circular is to explain the background to the
Requisition, the Board's recommendation as to how to vote at the EGM and its
rationale for that recommendation. In addition, the Board has given
consideration to the future of the Company, irrespective of the outcome of the
EGM, and the Board's proposals are detailed below in the section headed 'The
future of the Company'.
Primacy and equality of Shareholder interests
The Board is keenly aware that, in advising Shareholders as to the action they
should take, its duty is to place the interests of Shareholders first, and to
treat all Shareholders equally. The Board's objective therefore is to ensure
that, during the Requisition process and in any reorganisation or liquidation of
the Company that subsequently emerges, all Shareholders are treated equally.
Recent performance
In the Spring 2004 issue of Investment Trusts magazine, the Company was awarded
that magazine's "Best Small Companies Trust Award 2003". During 2003 Intrinsic
Value's Shares rose 75% in value and NAV per Share increased by 43%, both
significantly ahead of the 17% increase in the Company's Benchmark index. This
is an impressive achievement.
Against this background of superior performance and if the Requisition had not
been lodged, the Board would not have sought to change the structure of the
Company. The Board believes that Shareholders' best interests would have been
served by a continuation of the Company's investment policy and style in a
closed ended structure, whilst at the same time seeking to keep the level of
Discount as small as possible. This is particularly the case, the Board having
seen the market recover, and believing there is good potential over the medium
term for the Company's portfolio.
Net Asset Value increased ahead of the Benchmark
In the twelve month period to 30 January 2004, the latest practicable date prior
to the posting of this document, Intrinsic Value's NAV per share rose by 61%.
This compares very favourably with the 27% increase in the Company's Benchmark
over the same period. Over the longer term, Intrinsic Value's NAV per Share
performance shows a level of consistent out-performance against its Benchmark:
Period to 30 January 2004: NAV performance
One year Three years Since inception(1)
Change 61.0% (6.4%) (8.4%)
Benchmark 26.6% (28.2%) (28.6%)
Source: Datastream
Note: (1) Inception was 15 July 1999
Discount narrowed
At the beginning of 2003 Intrinsic Value's Discount stood at 38%. The Board and
Investment Manager were concerned about this and sought to reduce the Discount
by increasing the Company's visibility in the market place. By the end of 2003,
and before the lodging of the Requisition, the Discount had narrowed to 24%, in
line with the Peer group average of 22%.
Performance since Laxey's first disclosure
Laxey Partners has never expressed to either the Board or the Investment Manager
any concerns with regard to the performance of the Company. In the three months
from the first disclosure of a purchase of Shares by Laxey on 25 September 2003
to the lodging of the Requisition on 31 December 2003, NAV per Share rose by 12%
and the Share price rose by 9%, whereas the Benchmark rose by 6%. This strong
performance has continued into 2004 with NAV per Share rising by 6% in January
against a Benchmark fall of 1%.
The Requisition
Prior to receipt of the Requisition, the Board had received no approach from
Laxey, nor had it received any indication that it was in any way unhappy with
its investment, with the performance of Intrinsic Value or with the conduct of
either the Board or the Investment Manager.
Laxey has only been a shareholder for a short period of time, first acquiring
Shares in 2003 and first disclosing its interest in the Company on 25 September
2003. In this short period of time it did not attempt to contact the Board. Yet
on 31 December 2003 the Board received the Requisition that would, if the
Resolutions were passed, give Laxey control of your Company's Board.
Following the receipt of the Requisition, the Board and its advisers sought to
open a dialogue with Laxey. In particular Laxey was asked to detail its concerns
and objectives. Subsequently, Laxey stated that it was seeking to exit its
investment in the Company at "net asset value minus relevant costs", but raised
no points of concern with regard to the corporate governance of the Company or
its investment performance.
Shortly after the receipt of the Requisition, Laxey proposed that if the Board
invited two of the three individuals nominated by Laxey in the Requisition
(Messrs. Kingsnorth and Adams) to join the Board, it would withdraw the
Requisition. Seeking to find a co-operative solution to the concerns of a major
Shareholder and to enable the Board to review the options open to Intrinsic
Value in the light of Laxey's objective, but without the time constraints
imposed by a Companies Act requisition for a Shareholders' meeting, the Board
formally invited the two named individuals to join the Board on Friday 23
January 2004. As the Chairman commented in that letter, it was the Board's
belief that:
"by accepting this invitation, (Laxey) would be signalling to the Company and
its shareholders a willingness to work with the Board towards finding a
practicable solution to the issues the Company faces ... (which is)... in the
interests of the shareholders as a whole"
Despite seeking appointment to the Board, on 26 January 2004, Laxey's nominees
declined the invitation. On 27 January 2004 Messrs. Kingsnorth and Adams jointly
wrote to the Company stating that they would consider joining the Board and
would withdraw the Requisition providing certain pre-conditions were accepted.
These conditions included demands for a full cash exit to be offered to
Shareholders, although on what basis was not made clear, and the removal of ING
Investment Banking as financial adviser to the Company. While the Board is quite
prepared to consider the manner in which Shareholders can exit in a form which
is fair to all Shareholders if that is what Shareholders wish, it is not proper
for the Board to bind the Company in advance to a specific course of action
without a full consideration of the implications. The Board would be failing in
its obligations were it to do so. Regarding Laxey's attempt to force the Board
into removing its appointed independent financial advisers, it would obviously
be wholly improper for the Board to accede to such a request from a hostile
requisitionist. On commercial and corporate governance grounds, this was an
inappropriate and misconceived ploy. It could have been to the detriment of
Shareholders as a whole.
The Board continues to regret that the actions of Laxey have compressed
discussion about the future of the Company into a legally prescribed timetable
and that, to date, Laxey has resisted a full and proper discussion of all the
options for the Company's future. The Board believes that it is necessary to
have this full review and discussion as the interests of all Shareholders (and
not just Laxey) need to be considered. Further, the Board regrets the impact
this uncertainty has had on the management of the portfolio at a time when the
Company's strong investment performance must have been cheering for all
Shareholders.
The Board understands that Laxey believes the realisation of shareholder value
is best achieved by some form of reconstruction or liquidation of the Company,
which would also allow Laxey to achieve its aim of disposing of its shares at
"net asset value minus relevant costs". However, the Board fails to understand
how Laxey's lack of open discussion on the future of the Company and rejection
of an offer it solicited to join the Board helps in creating such shareholder
value.
The Board is concerned that if the Board came to be controlled by the
representatives of one minority Shareholder, those individuals would have duties
and obligations to Laxey's clients and Intrinsic Value's Shareholders that at
times might conflict. In this context, Shareholders should be aware that Laxey's
client assets under management, US$334 million as at 2 September 2003, far
exceed the size of the Company.
The independence of the Board
The Company's Board as currently constituted is fully independent both of
Shareholders and of the Investment Manager. The Board's composition is fully
compliant with the Combined Code of Corporate Governance and goes beyond the
requirements of the AITC Code of Corporate Governance. Should the Requisition
succeed and Laxey's representatives be elected to the Board, this compliance
with corporate governance best practice will cease as the Board will be
controlled by a substantial Shareholder, Laxey. Messrs. Kingsnorth and Pegge as
directors of Laxey are self-evidently not independent.
The Board does not believe Mr. Adams to be independent. He is Laxey's nominee.
He was party to Laxey's demand that the Company dispense with the services of
its independent financial adviser. Further, he has refused to have any
discussion with the Company and its financial advisers without first speaking to
Mr Kingsnorth, the Chairman of Laxey. The Board does not believe that such
behaviour is consistent with that expected of an independent director.
Shareholders should also note that the two Directors whose removal is not being
sought by Laxey, Messrs. Hodson and Rout, have advised the Board that, should
the Requisition be successful and control pass to Laxey's representatives, they
will be considering their position as Directors of the Company as they believe a
vote for the removal of their colleagues, Messrs. West and Hyman, is a vote
against the whole Board.
The Board is wholly independent from the Investment Manager and the major
Shareholders. The Board believes that both it and the Investment Manager have
every incentive to achieve the best outcome for Shareholders. Their interests
are wholly aligned with those of Shareholders in general, as three out of the
four Directors are Shareholders in their own right and the Company's portfolio
manager, Mark Horrocks, controls some 6.9% of Intrinsic Value's equity, at an
initial cost of approximately #1.6m.
Primacy and equality of Shareholder interests
The Board is keenly aware of its duty to place the interests of its Shareholders
first, and to treat all Shareholders equally. The Board is concerned to ensure
that, in any proposals brought forward regarding the future of the Company, all
Shareholders will be treated equally.
Contact with Laxey
Following Laxey's investment in the Company last year, the Investment Manager
sought to meet with Laxey to discuss Intrinsic Value and their investment
approach. The Investment Manager met Laxey on 13 October 2003 and again on 27
January 2004. At neither meeting did Laxey raise any issues as to the corporate
governance of the Company or its investment performance.
The Board feels obliged to address the criticism of the Board implied by Laxey's
Requisition. The Board believes that it is unjustified given the recent strong
investment performance of the Company and the fact that there had been no
contact between the Board or the Investment Manager and Laxey following the
meeting on 13 October 2003 until after the receipt of the Requisition. Given
that since Laxey's first disclosure the NAV per Share has increased by 19%, the
Share price has increased by 32% and the Discount has narrowed from 23% to 14%,
the Board believes that Laxey Partners has no grounds for complaint over the
performance of its investment and no justification for lodging the Requisition.
Observations on Laxey's actions
* Laxey has not, to the knowledge of the Board, made any specific criticism
of either James West or Harry Hyman. There seems to be no logic in their
desire to remove these two Directors but to retain Brian Rout and John
Hodson. In this regard, it is notable that the removal of two Directors and
installation of three Laxey appointees is the minimum condition required to
pass effective control of the Board to a 19.25% Shareholder.
* Colin Kingsnorth and Andrew Pegge, as the managers of and major
shareholders in Laxey Partners, the requisitioning Shareholder, are not
disinterested parties and will have a duty to their investment management
clients that may conflict with their duties as Intrinsic Value Directors.
* The Board does not believe that Martin Adams has demonstrated his
independence from Laxey; in particular he has joined in their demand that
the Board dispense with the services of the Company's financial advisers.
The Board considers this demand to be both inappropriate and improper, and
not the action of an independent director.
* There is no suggestion that the changed Board, as it would be constituted
were all the Resolutions to pass, would be better placed to carry out any
reconstruction or liquidation than would the current Board, particularly
given the current Board's knowledge of the Company's investment portfolio.
With Laxey's potential conflicts of interest outlined above, the Board
believes that it is best placed to implement any reconstruction or
liquidation of the Company.
* There is no suggestion from Laxey as to the nature of any reconstruction
that they might promote should control of the Board pass to them. Laxey has
not disclosed how it would seek to realise its shareholding at "net asset
value minus relevant costs", nor has it suggested any time frame. Such an
objective can be achieved in different ways. The Board is concerned to
ensure that any reconstruction is not effected in such a way as to favour
one group of Shareholders over others. In particular, the Board wishes to
ensure that there is a fair allocation of the costs of any reconstruction
and that the cash exit process is fair to all Shareholders, including the
smaller ones.
* There is no suggestion from Laxey that, should their appointees be elected
as Directors, they would leave the Board once Laxey Partners has exited or
substantially reduced its stake. This would leave them in control of the
Company without owning any of its Shares.
The future of the Company
The Board and the Investment Manager do not believe, given the outlook for UK
smaller companies, that now is an appropriate time to dispose of the Company's
portfolio. However, the Board is aware that, even though the Discount situation
is not specific to Intrinsic Value, a significant number of Shareholders (in
addition to Laxey) would like the Company to address the Discount at which the
Shares have traded, the liquidity of those Shares and to provide a cash exit for
those Shareholders who so wish.
Together with its advisers, the Board has considered the options available to
the Company to achieve those objectives. Given the illiquid nature of the
Company's portfolio, the Company's relatively small size and the substantial
proportion of the Company's Shareholder base seeking a cash exit, the Board does
not believe that it will be feasible for the Company both to accommodate those
Shareholders who wish for a cash exit and then to continue either as an
investment trust or as an open ended fund. Accordingly, the Board wishes to
advise Shareholders that it, in the present circumstances, intends to bring
forward a proposal to liquidate the Company if the Resolutions are defeated. The
Board also considers that, even if the Resolutions are passed, that liquidation
is the most appropriate course of action for the Company to take. The Board has
come to this conclusion with regret, given the recent strong performance of the
Company and the investment outlook.
In the Board's view, the key features of this liquidation should be to provide
for the costs associated with such a liquidation to be allocated across all
Shareholders pro rata and for the Company's Investment Manager to manage the
liquidation of the portfolio. If practicable, it would also provide for
Shareholders who so wish to elect for an exit in specie.
The Board believes that the existing Investment Manager would be the most
appropriate party to undertake the liquidation role given the nature of the
portfolio, and the Investment Manager's close association with the portfolio's
construction. The Board would also propose to restructure the management
agreement with the Investment Manager to incentivise it to maximise the
liquidation proceeds from the disposal of the portfolio and to undertake the
disposal in a timely fashion.
Recommendation
In light of the above, Shareholders are urged to vote using the proxy form
attached. The Board, which has been advised by ING Investment Banking,
recommends that Shareholders VOTE AGAINST the Resolutions to be proposed at the
EGM as they intend to in respect of their aggregate shareholding of 90,000
Shares, representing 0.36% of the Company's Shares outstanding. In addition,
Mark Horrocks, the Company's portfolio manager, intends to vote his shareholding
of 1,715,625 Shares, representing 6.9% of the Company's Shares, against the
Resolutions. In providing its advice, ING Investment Banking has taken into
account the Directors' commercial assessments.
The Board urges Shareholders to use their votes. ABSTAINING is effectively a
vote for the Resolutions, which the Directors believe IS NOT IN THE BEST
INTERESTS OF SHAREHOLDERS AS A WHOLE.
Enquiries
Intrinsic Value 020 7767 1000
James West
Chairman
ING Investment Banking 020 7767 1000
Nicholas Gold
William Marle
Powerscourt PR 020 7236 5630
John Murray
A copy of the circular has been submitted to the UK Listing Authority and is
available for inspection at the UK Listing Authority's Document Viewing
Facility, which is situated at:-
Financial Services Authority
25 The North Colonnade, Canary Wharf, London E14 5HS
DEFINITIONS
The following definitions apply throughout this press release unless the context
requires otherwise:
"Benchmark" The FTSE All-Share Index, the Company's investment benchmark;
"Board" or "Directors" The directors of the Company;
"Business Day" Any day (except Saturdays and Sundays) on which banks and the
principal recognised exchanges in London are open for business;
"Company" or "Intrinsic Value" Intrinsic Value plc;
"Discount" The discount to NAV per Share at which the Shares trade;
"Extraordinary General Meeting" or "EGM" The extraordinary general meeting of Intrinsic Value convened for
12 noon on 17 February 2004 (or any adjournment thereof);
"ING Investment Banking" The investment banking division of ING Bank N.V., London Branch;
"Investment Manager" As the context requires, Ghaliston Limited or its representatives,
Mr. Mark Horrocks and Mr. Harry Stevenson;
"Laxey" or "Laxey Partners" As the context requires, Laxey Partners Limited or its
representatives, Mr. Colin Kingsnorth and Mr. Andrew Pegge;
"Net Asset Value" or "NAV" The value of the capital assets of the Company (excluding current
period interest and dividend) after deduction of all liabilities;
"Net Asset Value per Share" or The Net Asset Value of the Company divided by the number of Shares;
"NAV per Share"
"Peers" or "Peer Group" Those investment trusts compared daily from time to time in the 'UK
- Smaller Companies' section of Fundamental Data's 'Daily List' for
'Closed Ended Funds';
"Proxy Form" The form of proxy for use in connection with the EGM;
"Resolutions" The resolutions set out in the notice convening the Extraordinary
General Meeting;
"Requisition" The requisition lodged by Laxey Partners requiring the Company to
convene an extraordinary general meeting to consider the
Resolutions;
"Shareholders" Holders of Shares; and
"Shares" Ordinary shares of 1p each in the capital of the Company.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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