Digital 9 Infrastructure has rejected calls from shareholder Aqua Ventures Limited (AVL) to hold a strategic review by 3 November.
The shareholder, which owns a 3.47% stake in the trust, wrote to chair Phil Jordan to express its ‘dissatisfaction’ over the governance and management of the infrastructure trust.
The £879m trust is trading on a 60.45% discount to NAV, according to the Association of Investment Companies. Last month, Digital 9 withdrew its 6p per share dividend target.
AVL claimed to have consulted and have the support of 20% of Digital 9’s shareholders, and said it plans to call an extraordinary general meeting to consider replacing the board if its request for a review was not met.
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It highlighted concerns over the sale of a controlling interest in Verne Global, saying the sale would likely lead to a sale of the trust itself and risks destroying value by stranding other assets.
“It is a widely held view that Verne Global is a ‘crown jewel’ of the Digital 9 portfolio, operating in the fast-growing data centre segment with sustained and accelerated customer demand. The board has failed to realise the inherent value of Verne Global and has not accurately evaluated the prospects of the syndication and growth capex requirements.”
AVL added: “In our view, this course of action risks destroying the value that would otherwise could be realised for DGI9 shareholders from continuing to own Verne Global.”
Meanwhile, the shareholder also questioned recent board decisions, including retaining Triple Point as investment manager, while AVL also called for a new independent board member with M&A experience to be appointed to oversee the strategic review.
Digital 9 responds
In a stock exchange announcement this morning (30 October), Digital 9’s board rejected the call for a strategic review and backed the sale of Verne Global, which it sees as the best opportunity to improve cashflow and strengthen the prospects of maximising value for shareholders going forward.
“The board considers it of utmost importance that Digital 9 is able to maximise the chances of successfully executing this sale process without distraction,” said chair Phil Jordan.
“It is the board’s view that initiating a strategic review at this juncture is not in the best interests of shareholders because it could destabilise the Verne Global sale, thereby disrupting the action the board believes will maximise shareholder value. The board’s position is clear and unchanged for those reasons.
“The board will, of course, consider any proposal that would maximise shareholder value.”
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Sale a ‘necessary evil’
Reacting to the announcement, QuotedData analysts said the sale of Verne Global was likely ‘a necessary evil’.
Analysts said: “No board wants to see one of their crown jewels gone but in Digital 9’s case they may need to cut it loose to save the rest of the trust. They are simply in too great a need for immediate liquidity to be overly picky about how the board raises cash. Such a situation is never desirable but it is a legacy of the previous management team.
“Shareholders are frustrated with the pace of action needed to sort out the balance sheet, and this is probably what has lead to AVL’s letter. We note that AVL has a past relationship with Digital 9, beyond that as mere shareholder, given their relationship Aqua Comms.
“AVL may feel that given their history with the assets they may be better placed to lead the trust, or at least steer its direction. We think that the board is ultimately on the right track with the sale of Verne Global, and that Digital 9’s discount should narrow post sale given how awash with cash the trust would be.”
