Electra `bombshell' on pay blew up 3i talks

3I, THE venture capital firm embroiled in a pounds 1.24bn hostile bid for Electra Investment Trust, yesterday revealed that a secret pay deal for Electra's fund managers had blown apart initially friendly talks.

A spokesman for 3i confirmed that Michael Stoddart, chairman and founder of Electra, had initially agreed to an outline pounds 1.2bn deal and entered talks with Brian Larcombe, chief executive of 3i.

After agreeing to enter more detailed talks, Mr Stoddart dropped what 3i described as a "remuneration bombshell", saying he had agreed to a 60 per cent boost in rewards for the trust's fund managers at Electra Fleming.

In one of the City's raciest reward packages, senior fund managers at Electra Fleming had already been given a 5 per cent participation in capital profits. The new pay package would have increased this to 8 per cent.

According to 3i, Mr Stoddart said on 15 January that he was minded to accept their offer. But he insisted that the agreement, which had not been disclosed to shareholders, must be honoured. Talks about the 720p- a-share offer collapsed after 3i baulked at the pay deal.

Instead, six weeks later, Mr Stoddart offered to buy back 40 per cent of the shares at 786p and wind up the trust. The wind-up plan entails the purchase by the trust of a 50 per cent stake in Electra Fleming.

3i yesterday said it was revealing the issue because of irritation at continual leaks to newspapers "by the other side". Reports have also suggested a clash between Mr Stoddart and fund managers at Electra Fleming.

3i has continually resisted suggestions that its bid, which would create the biggest venture capital firm in the country, was hostile.

Electra executives were unavailable for comment yesterday. But Electra has stressed that Mr Stoddart would not take a unilateral decision on an approach.