Happy pill - 3i has taken an interesting approach to fighting off a possible takeover
An interesting twist on the ‘poison pill’ defence against hostile takeovers has emerged from the private equity sector, where 3i appears to be trying to ward off a perceived threat by making its shares look more – rather than less – attractive.
On 29 January, 3i took the unusual step of announcing its “understanding” that activist investor Edward Bramson’s Sherborne investors had been trading in its shares and that an investment vehicle linked to Sherborne recently raised “£207m with the stated objective of investing in a company which is publicly quoted, most likely on a UK stock exchange, and which it considers to be undervalued”.
Companies tend not to presume to be mind-readers but the conclusion to be drawn from juxtaposing these pieces of information seems fairly inescapable. Nor is 3i’s move likely to stem from altruism but rather a desire to encourage the interest of other investors to force up its share price and so hinder any attempt to take over the company.
The question facing most investors is how much they should care – after all, the likely end-result of either potential scenario is a rise in 3i’s share price. While that would be a fair answer in the short term, however, most investors ought to care a great deal in the longer term because they would presumably want the business to be run by the best people.
That means first judging if 3i’s current management team has a credible plan and then whether or not Sherborne’s plan is better. Unfortunately, one cannot know what Sherborne’s plan might be while the current management team – itself relatively new to the business – has had very little time thus far to execute its own ideas.
Here on the value perspective, we will be watching with interest to see how the story unfolds but the statement was certainly an unusual move by 3i. It is far more common for companies to try and scare off potential predators by taking action to make the business less attractive. The 3i approach is undeniably a more positive way of addressing the issue.
Fund Manager, Equity Value
I joined Schroders in 2001, initially working as part of the Pan European research team providing insight and analysis on a broad range of sectors from Transport and Aerospace to Mining and Chemicals. In 2006, Kevin Murphy and I took over management of a fund that seeks to identify and exploit deeply out of favour investment opportunities. In 2010, Kevin and I also took over management of the team's flagship UK value fund seeking to offer income and capital growth.
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