Outlook: Electra/3i

IT HAS long been a source of considerable irritation to Michael Stoddart, chairman of Electra Investment Trust, that his shares have traded at a big discount to net assets, while those of 3i, a rival venture capital group, are at a premium. Partly as a consequence of this, he now finds himself at the end of an unwanted pounds 1.25bn bid from his more highly rated peer.

Mr Stoddart has been with Electra, which includes investments in Her Majesty's Stationery Office and Derby County football club, since it was started in 1976, and if there is one thing he's determined to do before taking long planned retirement, it is see off Brian Larcombe, chief executive of 3i. Is he likely to succeed?

Certainly he's in with a good chance. 3i owes its premium rating largely to two things. First it is in the FTSE 100 share index, which automatically bestows a higher valuation on companies. Second it has a fund management arm, giving added value. Other than that, however, the two companies are quite similar. A cynic would say that Mr Larcombe only wants to buy Electra so that he can cement his position in the FTSE by making himself larger and therefore less vulnerable to expulsion.

His 725p a share final offer (actually 721p after taking account of the fact that Electra shareholders won't be entitled to the final dividend on their new 3i shares), seems generous by historic standards, but Mr Stoddart has come up with a spirited alternative.

He plans a tender offer at 786p a share for 40 per cent of the stock, with the promise of further buybacks, presumably at similar prices, as the trust's portfolio of assets is progressively liquidated. Shareholders will end up with a smaller trust, but one whose share price might be capable of sustaining a rather higher valuation. Shareholders are likely to do better by sticking with Electra.

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