James Moore: Sherborne must now put up or shut up
Wednesday 26 January 2011
Outlook "Hey buddy, trust us, we're good guys. We'll make you loadsa cash, you'll see. We've done it before and everything. Honest!"
This appears to be the approach adopted by Sherborne, the activist American investor, in its attempt to grab control of Foreign & Colonial Asset Management without the inconvenience of having to pay a premium. Sherborne wants to secure the election of three of its representatives to F&C's board so that it can dictate strategy. It also pointed out a number of failings at F&C and, to be fair, there is at least a case to answer. F&C's performance has been less than stellar, it has quite a bit of debt on its books and the recent deals it has done... well, it will take time to see whether they prove to be worthwhile or not.
These issues should not be swept under the carpet. But F&C, which asked a series of pointed questions of Sherborne yesterday, is right to resist the activist. Sherborne has yet to put forward a coherent alternative to F&C's strategy other, that is, than forcing F&C to have more "financial discipline" regarding acquisitions and "working co-operatively" with the company to pep up performance, (although its current approach suggests that this may prove to be somewhat challenging).
The fund management experience of Sherborne's three proposed new directors is also limited at best and, given that they want to effectively seize control of a company that looks after other people's money, you would expect them to do rather better at elucidating how they intend to improve things. It is true that Sherborne has the support of Aviva, but as Glass Lewis, which advises shareholders on how to vote, notes: "We believe shareholders should greet this relationship with a degree of scepticism when considering the interests and independence of Aviva and its support for Sherborne's nominees." Quite.
Perhaps F&C's management has needed a wake-up call. But now it has received one, shareholders should give it the benefit of the doubt, not least because if there is an alternative plan for its future, Sherborne has done a terrible job of explaining what it is.
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