In a statement to the stock exchange on Monday, Electra said the proposed strategic review would have a “deeply destabilising effect” on the company and risks “destroying shareholder value in the future”.
According to Electra, the letter contains “unverifiable statements and unsubstantiated claims” and only serves to “highlight a lack of understanding of the Electra business and its fundamental investment proposition” on the part of Sherborne.
The letter from Sherborne, published last week, follows a requisition by Sherborne of a general meeting of Electra shareholders set for 6 October, in order to try and appoint Edward Bramson and Ian Brindle as company directors and remove Geoffrey Cullinan from the board.
According to the letter, Electra’s investment portfolio “would have failed to beat an investment in a relatively simple and inexpensive FTSE 250 tracking fund in each of the last seven years”. This, it says is relevant because the FTSE 250 provides a better benchmark of performance for Electra’s investments than the FTSE 100 (which the company currently uses) because it is dominated by very large companies.
“In the last five years, 67% of private equity funds of similar size dating from 2009 produced better returns than Electra. The major reason for this underperformance appears to be that as successful investments, made by the Company 15 or more years ago, were disposed of, the investments that replaced them were substantially less attractive.”
In response to this, Electra says it has delivered an annualised return on equity of 14% over the 10 years to 31 March 2014, at the upper end of its 10%-15% targeted range.
In response to Sherborne's claims that a strategic review could unlock £1bn of value, Electra says Sherborne has failed to provide any detail on how this might be achieved.
“Sherborne's claims appear to be based upon analysis of a "representative" sample of Electra's portfolio companies; in reality, they are based on public information covering less than 30% of the current investment portfolio,” it adds.
Electra also disputes Sherborne’s claims that the firm’s performance is declining and says it has consistently beaten the FTSE 250 index over the last 10 years.
Electra also questions Sherborne’s track record, commenting: “Sherborne has provided details of five key UK investments over the last 10 years prior to its investment in Electra. One of these investments was a passive investment in 3i Group plc where Sherborne did not obtain board representation. Another was in F&C Asset Management Plc ("F&C"), which underperformed its peers during the time of Sherborne's involvement. The remaining three investments, totalling just c.£80m, were in operating companies that required a turnaround. Electra is not an operating company, nor does it invest only or predominantly in turnaround companies.”
The vote is set for 6 October 2014.
