Link accused of letting further middleman chip into Woodford investor savings

The US firm that bought a bundle of biotech stocks from Neil Woodford’s former equity income fund at a steep discount has ditched significant portions of the stakes days after acquiring them, raising questions about why Link didn’t strike a better deal for trapped investors.

Link, the authorised corporate director for Woodford Equity Income, announced earlier this month Acacia Research had agreed to purchase 19 of the fund’s healthcare assets at a deeply discounted price of £224m.  

A series of RNS and SEC filings show eight stakes valued at around £150m from the failed fund have changed hands from Link to Acacia over the past week, including contraceptive maker Evofem, respiratory drug company Synairgen and live biotherapeutics firm 4D pharma. 

But within days of acquiring them Acacia had already offloaded a significant portion, selling out of two holdings, Midatech and Theravance, entirely. 

Acacia hastily disposes of Woodford assets

On 9 June Acacia sold 25 million shares in Open Orphan worth £3.1m, as well as 2.6 million shares in Synairgen valued at £926,000, after acquiring both stakes the day before.

It made another £548,000 from cutting its stake in 4D Pharma from 11.96% to 10.81% and disposed of 9.1 million shares in Evofem for $3.20 a piece, according to an SEC filing, netting it $29.3m (£23.3m). 

Later in the week it reduced two other holdings acquired from Link, Tissue Regenix and Theravance, cutting its stake in the former from 19.98% to 2.26% and offloading its shares in the latter completely.

None of the documents revealed the final price Acacia paid for the former Woodford stakes with the exception of Aim-listed biotech firm Midatech, also sold by Acacia on 9 June.

RNS filings show the California-based buyer snapped up 3.9 million shares or a 9.9% stake in Midatech for around 1.7p a pop on 4 June, a steep discount to its share price on the day of 24.5p. Days later it turned around and divested its entire holding at a price of 21p a share, netting a profit of around £752,000. 

A second middleman

Acacia has become like “a second middleman” on top of Blackrock and PJT who were hired by Link to sell-down the remaining stub of listed and unquoted companies in the portfolio respectively, says 7IM senior portfolio manager Peter Sleep. 

“It’s amazing. You know, you had these hugely illiquid stocks and they flipped them all out straight away,” he says. 

“What Acacia seem to be doing is buying stuff and selling it. But why aren’t PJT doing this? That’s what they’ve been hired to do.” 

As more parties get involved, each taking a cut for helping with the disposal of the assets, the underlying value of the equity diminishes, Sleep says. “And then it’s a net loss to the shareholders.” 

Fees campaigner Robin Powell feels sorry for Woodford investors watching this play out.

“It must seem to them that everyone, including Neil Woodford, has made a fortune from this fund with the exception of those who actually invested their money in it.” 

Though 80% of the fund has been liquidated at this point, investors have had to stomach huge losses while they wait for Link to sell down the remaining assets which has been exacerbated by the coronavirus crisis. Since the global market rout kicked off on 20 February, Woodford Equity Income has fallen 38.4%, compared with the IA UK All Companies sector down 16.3%. 

Meanwhile Acacia, which is part-owned by New York hedge fund Starboard Value, has seen its shares leap 21% since the deal was reported which are now trading at close to $4 a piece. 

Link had plenty of time and far better market conditions to find a buyer

The speed at which Acacia was able to sell-off huge chunks of the former Woodford holdings raises “a lot of questions” as to why Link and PJT couldn’t secure the deals directly themselves, says Willis Owen head of personal investing Adrian Lowcock.  

“They have had plenty of time and far better market conditions in which to find a buyer at a decent price,” he says. 

“Maybe PJT weren’t interested in really getting down into the weeds and selling off Theravance and Midatech and were just interested in the big number – £224m – and taking their commission,” Sleep says.

“But I would have thought that given these companies are listed and given that Acacia was able to flip them so quickly, they could have done that work themselves and cut out Acacia’s profit share.” 

Powell says Link’s decision to sell Midatech shares at a 93% discount is also puzzling. “If Acacia research was able to turn such a large profit on these shares, why couldn’t Link have done the same?” 

More delays for Woodford investors 

So far the ACD has transferred eight stocks to Acacia, including an 8.9% stake in Mereo Biopharma, which it has not yet sold down. But Link has previously warned the formalities associated with the sale of certain assets could take up to six months to complete. 

Documents filed with the SEC on 10 June confirm this timeline, outlining that Link and Acacia are working to a deadline of 30 November 2020. But both parties can agree to a one-month extension, meaning Woodford Equity Income investors might not receive the full proceeds of the sale until after Christmas. 

In total 17 Woodford biotech holdings were named in the document. Four unquoted companies, Oxford Nanopore, Amo Pharma, Novabiotics and Viamet, which is part owned by Malin, another listed company included in the transfer, have yet to be valued.   

Woodford Equity Income companies sold by Link to Acacia Research 

Source: SEC Form 8-K Acacia Research Corp; filed on 10 June 2020 

‘Link clearly has a case to answer’

Powell says the news that investors may not get their money this side of Christmas is yet “another blow”. 

“The timescale for the winding down of the Woodford Equity Income fund and the return of what remains of investors’ money seems to be getting longer and longer.” 

Powell notes that Link as the authorised corporate director has a fiduciary role and regulatory obligation to ensure that in the process of winding down the fund, investors are protected and treated fairly. 

He is “increasingly convinced” that at least one class action over the Woodford debacle will move forward and says Link could find itself in the firing line. 

“Until now the focus has been on seeking redress from Hargreaves Lansdown. But Link clearly has a case to answer as well,” he says. 

“Link failed investors by failing to address the increasing illiquidity of the fund at a much earlier stage. And it still appears to be failing investors now.” 

Both Link and Acacia declined to comment.