Hedge fund set to block £346m sale of Telent

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The Independent Online

The US hedge fund Polygon will block a takeover of Telent - the rump of former industrial giant Marconi - tomorrow, even though its stake in the telecom services company will lose significant value as a result.

Telent has agreed to a £346m takeover by Fortress Investment Group, but postponed a meeting with shareholders last month after Polygon said it would vote against the deal. Telent has not convinced Polygon to support the merger or dilute its 24 per cent stake. Nevertheless, Telent will hold its extraordinary general meeting tomorrow when it is believed Polygon will block the takeover. Polygon declined to comment.

Mike Parton, Telent chief executive, said: "Our view today is that the scheme is going to fail." He said discussions with Polygon had not resulted in "any feasible proposal". Mr Parton, who will leave the company if Fortress's offer succeeds, refused to say whether he would stay on if the deal falls through.

Polygon, which also tried unsuccessfully to block the refinancing and stock market return of British Energy, wants to get its hands on funds held in an escrow account that was put in place to ensure Telent's pension plan meets its obligations. The escrow account had a balance of around £390m in June, after £102m was released to plug a hole in the pension plan this year.

Mr Parton said Fortress has established a second escrow account as part of the takeover. He explained that for funds to be released, the "buyout value" of the fund and escrow account would have to fall by more than £500m to £3.2bn. Any attempt to release funds from the escrow account could meet opposition from regulators and trustees.

Polygon has most to lose if the Fortress deal falls through as it is the largest shareholder in Telent, but it argued that Fortress's offer undervalues the business and has unsuccessfully tried to join Fortress in the Telent takeover. Polygon, which owned a 13.6 per cent stake in Telent prior to the Fortress offer, has increased its economic interest in the telecoms equipment company to around 20 per cent, and holds a further 4 per cent through contracts for difference.