Electra aims to thwart 3i with share buyback move

ELECTRA INVESTMENT Trust yesterday mounted its defence against a pounds 1.2bn unsolicited bid by 3i group when it offered to buy back shares at a 40 per cent premium to their pre-bid price.

Electra, which received the bid of 705p a share in January, is proposing a tender offer at 786p for 40 per cent of its share capital, costing the trust pounds 544m. The geared-up trust will then be wound up within five years.

Michael Stoddart, the Electra chairman who founded the trust 26 years ago, said further buybacks were planned: "We would hope the majority, if not all, the money would be back in shareholders' hands within the five years," he said.

Electra will also spend pounds 30m buying out Robert Fleming, the investment bank, from its 50 per cent stake in Electra Fleming, the trust's investment managers. The future of Robert Fleming's stake - sold less than five years ago - was one of the main sticking points of the 3i bid.

The defence was welcomed by the market, which marked the shares up 6 per cent to 729.5p, in spite of the absence of much-rumoured third-party bidders.

But Electra also came under attack from a number of analysts who said it had stretched the value of its unquoted assets to the limit. The trust's biggest unquoted stock, PHS, was valued at pounds 48m at the end of September. According to Electra's valuation, the stock was worth pounds 80m by the end of February. Another holding, in a company called ICIL, more than trebled in value.

Mr Stoddart said the re-valuation of the trust's assets was conservative given the 20 per cent rise in the FT-All Share index. But analysts said the valuation meant the stocks would have to grow earnings by 30 per cent a year.

Analysts also said shareholders wanting to sell their entire holding would get less than the 3i bid - because the rump investment trust, geared up to finance the buyback, would be worth less. They also questioned an incentive scheme, giving senior executives of Electra Fleming up to pounds 30m if they succeed in realising over pounds 1.9bn of assets.

Roly Crawford, head of investment trusts at ABN Amro, said the managers would need to improve the value of assets by only 6 per cent a year to get the rewards: "The whole issue is a bit smelly. Given that they are getting quite a good fee anyway, you would have thought they would have a tougher task."

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