Derek Pain: GNE board rocked by shareholder power

No Pain, No Gain

Giving up a bonus payment of 150p a share in these depressed, cash-hungry days would obviously be a step too far for many hard-pressed investors. Yet that is the sacrifice shareholders in an obscure AIM-traded company, GNE Group, have been urged to make.

But many of them rebelled against such an imposition. And a desperate re-think could now be under way in the GNE boardroom.

What became an acrimonious confrontation started towards the end of last year when the company reneged on a promise to make a special bonus payment. The 150p a share was to be paid out of the £57.7m proceeds from the sale of a chain of about 60 petrol stations. Indeed, when the deal was completed, GNE's chairman David Port made great play of the fact that shareholders would receive a cash return and went on to hint that the group, which retained fuel card and property interests, could re-enter the garage business.

But then came a sudden, unexpected change of mind. Martyn Ratcliffe, chairman of the Microgen software group, was the catalyst. His arrival on the share register coincided with plans to drop the bonus payment and turn GNE into a fully listed investment trust specialising in hi-tech shares.

Uproar ensued. Many shareholders were not prepared for the board's investment manoeuvre. They protested vigorously. And although those supporting the investment trust decision seemed to have the whip hand, the rebels' tenacity could have put them on the verge of a significant victory. Whatever the outcome, the anti-investment campaign has struck a rare blow for small shareholders which can only enhance their standing. The GNE affair could also act as a warning to directors who fail to acknowledge the feelings of their shareholders.

Last week the special shareholder meeting, called to rubber stamp the investment proposals, was adjourned until the end of this month. Naturally, the rebels were overjoyed. Surely if the board had felt sufficiently confident of winning and demoralising the opposition it would have pressed on.

Of course, Ratcliffe and chums could believe that the extra time will enable them to drum up support to get the contested changes approved. But if that is the position, they will probably have to make concessions.

I cannot see much merit in the investment strategy. But Port talked confidently that the Ratcliffe initiative stood a "greater chance of success" in the current depressed climate with so many shares in the doldrums.

Ratcliffe certainly has an inspiring record. And he may be able to pull off the audacious transformation. But it would take time – perhaps a long time. So, not surprisingly, many shareholders not only took the view that cash is king but objected to what they regarded as the "hijacking" of their company.

Last week's investment setback was certainly a surprise. After all, the board commanded 16.3 per cent of the capital, with Ratcliffe and supporters seemingly accounting for a further 28.7 per cent. As befits an old established group, GNE is well endowed with shareholders – about 6,000 of them. It seems that a large corporate shareholder joined the rebellion.

So what happens now? If the investment switch has been abandoned, GNE, previously known as Global Natural Energy, could revert to the earlier plan – paying the special dividend, attempting another garage build up and expanding its fuel card and property activities. Or it could indulge in a time-consuming liquidation and eventually return cash to shareholders.

There seems every chance that talks between the board and the rebels will occur before the adjourned meeting. A compromise, I suspect, will be difficult to negotiate. Ratcliffe is a GNE director, although with the investment strategy on ice has, presumably, not taken over as chairman as planned. And another hi-tech big hitter, Michael Jackson, who was due to join the board, remains on the sidelines.

Interestingly, GNE is one of the few AIM shares that has survived the traumatic sell-off of the past couple of years. They started last year below 100p. Now the price is 156p, having neared 200p. Admittedly, the shares are a far cry from the 250p level hit in 2004. Even so, they have displayed remarkable resilience as the FT small-cap index has more than halved since late 2007.