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A public company is owned by its shareholders. That’s a basic principle which, in my view, is too often forgotten or ignored. Directors are there to lead, steward, serve and, very importantly, to inform shareholders — but it is the shareholders who should call the shots.
This lies at the heart of a challenge I have launched at the Takeover Panel, which supervises UK bids and deals, to improve shareholder access to timely information, notably in takeovers.
My contention is that boards often fail to inform shareholders of serious takeover talks as, crucially, they are not required to do so by current panel guidelines.
Put simply, leaving aside leaks, boards have to make an announcement only when there is “a firm intention†to make a bid coming from a potential buyer.
This can mean that acquisition talks drag on for many months with any number of offers, perhaps from more than one party, without a statement being made.
Signature Aviation is a recent example of my concern. This leading global private aviation support business, was, according to unconfirmed press reports, seemingly on the receiving end of up to 10 approaches from at least two different investment groups — Blackstone and Global Infrastructure — between February and December last year.
Yet nothing was disclosed to shareholders until December. Signature then revealed it had received two approaches and a few days later that it had received an offer, which the directors were minded to accept at a significant premium to the prevailing price. Finally, last month, a deal was struck at 411p a share with Blackstone and Global teaming up in a joint approach with a third investment company, Bill Gates’s Cascade.
Any shareholder who sold in ignorance of a possible bid seriously lost out, as the takeover price was above the market price for all of 2020, and far above an April low of 153p.
I should disclose that I was a shareholder in BBA Aviation, a predecessor company to Signature, in 2008-15, and I retained an indirect interest, managing stakes for my wife and daughter, before selling out at 441p in January.
My main issue is not with the company, which kept to the rules, but with the rules themselves, though was there not, even under existing regulations, a bit of a moral obligation to inform shareholders?
It cannot be right to delay disclosure so long in an increasingly transparent corporate landscape where, for example, directors’ share transactions have to be announced immediately.
I concede that the actual trigger for an announcement is hard to define, but I suggest it is not beyond a responsible board, perhaps after consultation with the Takeover Panel, to recognise whether directors should announce those talks to the shareholder-owners.
They can add, as they often do, that “there can be no certainty that an offer will ultimately be madeâ€. But they need to speak out earlier in the process.
After such an early announcement, shareholders have the option of retaining or selling their holdings, in the knowledge of what is happening.
Isn’t this preferable to shareholders making their decisions in total ignorance? How many hundreds of shareholders will have been disadvantaged under current panel guidelines? I am encouraged by the support of investors that I have talked to and the backing of ShareSoc, the 7,000-strong premier body representing private investors, where I am patron. Isn’t a review and change of guidelines long overdue?
Responding to a question from me in the House of Lords, the government indicated that operating the Takeover Code, and making any changes, was the responsibility of the panel itself.
Fortunately, the panel might be open to discussion, and I have a meeting arranged with its executive. In a letter to me, the panel chairman said: “The question of the appropriate regime for the disclosure of takeover approaches is an important one and one which deserves full debateâ€.
Turning now to my own portfolio, I cannot think of a current holding where the outlook looks negative.
Pride of place goes again to my largest holding, Treatt, the fragrance and flavours group, which soared to £10 on a healthy profits statement.
The company is increasingly seen as a beneficiary of the health and wellbeing trend. Unsurprisingly, profit-taking, perhaps driven partly by concerns about capital gains tax, has brought the shares back to £9. But Treatt remains a core holding, with every sign of further growth to come.
The share prices of three other major holdings have similarly come off the top. But I think that Anpario, a provider of natural stimulants for animal growth, Concurrent Technologies, a manufacturer of specialist computer boards, and Lokn’Store, an operator of self-storage centres, all have considerable scope for further appreciation.
Another five — Appreciate, Christie, STV, Vianet, and Vitec — are in recovery mode and their figures will almost certainly pick up as we emerge from lockdown.
During the last quarter, I have modestly added to both food ingredients maker Tate & Lyle and ventilation products manufacturer Titon. Tate, capitalised at over £3bn, appeared to me to be undervalued. Titon, a cash- and property-rich company, has been overlooked as a long term beneficiary of Covid-19, with new building regulations increasingly requiring better ventilation.
For the first time in 35 years, I am withdrawing my ISA dividend income, so new purchases have to be funded from sales or takeovers. Thus Treatt has been slightly trimmed, rather more so Legal & General, to fund two new purchases — Duke Royalty and Tatton Asset Management.
Duke, under experienced Anglo-Canadian management, provides an unusual form of finance for established companies through royalty or revenue-based financing, somewhat akin to corporate mortgages.
Current financial pressures on business are providing an increased flow of opportunities for Duke, enabling the group to selectively make perhaps four new investments a year. Tatton offers platform-based discretionary fund management and mortgage services to UK financial advisers. I expect both companies to grow over the medium term.
Lord Lee of Trafford is a private investor and author of “Yummi Yoghurt — A First Taste of Stock Market Investmentâ€. He is a shareholder in the companies indicated.
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