LONDON, Nov. 18, 2011 /PRNewswire/ -- British Steel
Pension Scheme, Henderson Global Investors, Northview Investment
Fund, funds managed by QVT Financial LP and VR Capital Group
(together, the "Shareholders" or "we"), each holding
beneficial interests in the share capital of ARC Capital Holdings
Limited (LSE: ARCH) (the "Company") which in aggregate
represent over 25 per cent. of the Company's outstanding shares
announce today that they oppose the resolutions (the "Board
Resolutions") put forward by the current board (the
"Board") of the Company to be considered at the
extraordinary general meeting (the "Board EGM") of the
Company to be held on 14 December
2011 and that they have written to the Board requiring
them to convene an extraordinary general meeting of the Company to
consider a set of alternative resolutions (the "Shareholder
Resolutions"), which are appended to this announcement.
The Shareholders believe that:
- The Board has rejected changes to the Company's articles of
association that would improve corporate governance
provisions;
- The Board has not adequately addressed shareholders' investment
preferences; and
- The Board composition should be changed for the benefit of all
shareholders.
Accordingly, the Board Resolutions do not adequately remedy the
existing, in our view, unsatisfactory situation.
The Shareholder Resolutions will put forward independent
directors and provide advisory guidance to promote good corporate
governance and support for substantive changes to the Company's
current capital structure.
The Shareholders thus encourage all shareholders to vote against
ALL of the Board Resolutions at the Board EGM and to vote in favour
of ALL of the Shareholder Resolutions.
This statement reviews the relevant background behind the
Shareholder Resolutions in more detail. All shareholders who are
interested in learning more are invited to contact Mark Harwood at Georgeson Corporate Advisory at
0800 923 1512 (UK) or +44 207 019 7025 (outside of UK) or by email
at ARCShareholders@Georgeson.com.
I. The Board has rejected changes to the Company's articles
of association that would have improved corporate governance
provisions
On 20 June 2011, two major
shareholders of the Company wrote to the Board to request a number
of changes which would have the effect of improving the Company's
corporate governance practices. These proposed changes
included amendments to the Company's articles of association 1) to
require the Company to hold annual general meetings and 2) to
reduce the percentage of voting rights in the Company required to
requisition an extraordinary general meeting of the Company (the
"EGM Threshold") from 25 per cent. to 10 per cent. On
16 July 2011, these shareholders
received a reply from the Manager on behalf of the Board rejecting
all of these shareholders' requests. The justification given
for not holding annual general meetings was that "Cayman law does
not require annual general meetings to be held" and that "given
ARCH's broad international shareholder base any physical location
for a meeting is likely to be inconvenient for a large number of
shareholders." The Shareholders consider that these reasons
are inadequate and do not justify limiting shareholders'
opportunity to vote on matters concerning the Company.
On 5 October 2011, a larger group
of five shareholders wrote to the Board to request many of the same
changes in a further attempt to convince the Company to improve its
corporate governance practices.
On 10 November 2011 the Board
convened the Board EGM to consider the Board Resolutions. The Board
Resolutions include resolutions to hold annual general meetings and
to lower the EGM Threshold and are stated to "bring the Company in
line with most other AIM-quoted investment companies...".
However, the Board Resolutions only contemplate the reduction of
the EGM Threshold to 15 per cent., not 10 per cent., which the
Shareholders believe is the threshold in place for the vast
majority of UK-listed investment companies, and the standard to
which they believe the Company should conform.
In addition, the Board Resolutions propose that the first annual
general meeting would be held in 2013 rather than 2012. The
Shareholders believe that this unduly delays the implementation of
improved corporate governance practices and that the Company should
hold its first annual general meeting in 2012.
Therefore, we recommend voting FOR Shareholder Resolution 7,
which is an advisory resolution, authorising and requesting that
the Board hold annual general meetings (endnote 1) and FOR
Shareholder Resolution 8, which is an advisory resolution,
authorising and requesting the Board to call an extraordinary
general meeting of the Company if requested by no less than 10 per
cent. of the issued shares (endnote 2), and AGAINST Board
Resolution 1.
II. The Board has not adequately addressed shareholders'
investment preferences
The shareholder letter of 5 October
2011 also requested that the Board offer all shareholders a
choice as to whether or not to continue their respective
investments by restructuring the Company's capital into continuing
and liquidating pools. We believe there may be many long-term
investors in the Company who have held their shares since the
initial and secondary public offerings and are not satisfied with
the Company's long-term performance, since both the Company's NAV
and share price have underperformed what the Shareholders consider
to be relevant benchmarks since each capital raise. The table below
shows the total return on a buy and hold basis, in each case
measured in USD, of the Company's share price, the Company's NAV,
the Hang Seng Index, the CSI 300 Index and the Renminbi from
the capital raise dates listed below through to 14 November 2011.
|
|
Commencement
of period (endnote 3)
|
Company
share price
|
Company
NAV
|
Hang Seng
Index
|
CSI 300
Index
|
Renminbi
|
|
Initial public offering of
the Company's shares (26 June 2006)
|
-28%
|
+6%
|
+46%
|
+171%
|
+26%
|
|
2nd Round (3 May
2007)
|
-47%
|
-22%
|
+10%
|
-4%
|
+21%
|
|
3rd Round (28 April
2008)
|
-56%
|
-35%
|
-14%
|
-15%
|
+10%
|
|
|
|
|
|
|
|
We are of the opinion that any such long-term shareholders who
are not satisfied with the Company's performance should be entitled
to dispose of their respective shareholdings at NAV over time
rather than at a steep discount or be forced to have funds
reinvested against their will. Conversely, shareholders
electing for continuing shares may benefit from eliminating the
"overhang" of shareholders who would prefer to monetise the value
of their shares, which may be depressing the share price. We are
not aware of persuasive evidence that the liquidity for continuing
shares would be adversely impacted by such a restructuring. To the
contrary, for example, the continuing shares of Pacific Alliance
China Land Limited and Pacific Alliance Asia Opportunities Fund,
which were both restructured into continuing and realising shares
in 2009, trade with volumes in line with their respective peer
groups.(endnote 4)
We believe that such a restructuring should not pressure the
Company to sell its assets prematurely or at the wrong price, as
such a restructuring would only determine the extent to which sale
proceeds are retained, rather than the commercial terms of any
portfolio sales. Thus, we disagree strongly with the Board's
statement in the circular (the "Board Circular") convening the
Board EGM that a restructuring is not in shareholders' interests
because "this is not an optimal time to sell portfolio assets".
The issue at hand is what the Company should do with sale
proceeds once they are realised (whether over the short or long
term) and not the timing or the manner of the sale of such
assets.
While we believe a restructuring of the Company is required, we
oppose Board Resolution 3 as we believe that it is premature to ask
shareholders to pass a special resolution with respect to such
restructuring when the shareholders have not been sufficiently
consulted with or provided sufficiently detailed information.
The Shareholders note that the Board has proposed the
implementation of a Discount Control Mechanism ("DCM"). The
Shareholders oppose the implementation of such a DCM for several
reasons.
Firstly, the DCM is not appropriately defined in the Board
Circular. For example, the definition of "Free Cash" given in the
circular excludes Renminbi-denominated assets. However, many
disposals of the Company's assets are made in China, and Renminbi is not easy to repatriate.
This may lead to inappropriate reinvestment of the proceeds of
disposals. Moreover, the definition of "Free Cash" is subjective
and could potentially be reduced by committing capital.
Secondly, the price is to be calculated by a 60-day
volume-weighted average price whereas the NAV used is to be the
preceding quarterly-stated NAV. The use of this NAV measure would
introduce a lag in the discount measurement which, in turn, may
create material distortions, particularly in today's volatile
markets. For example, if markets perform poorly, then it may appear
that the discount has widened and reinvestments will be halted,
even if the NAV may have fallen more than the share price.
Thirdly, the DCM does not enable all shareholders to realise
their individual investment preferences. Some continuing
shareholders may be discouraged that the persistent discount of
share price to NAV (which has averaged 25 per cent. over the past
three months (endnote 5)) precludes further investment, and some
realising shareholders may be understandably frustrated by their
inability to dispose of their shares at NAV, even after investing
in the Company as a founding shareholder over five years ago.
Therefore, the Shareholders believe that the proposed DCM
does not work, and that a division of the Company's capital into
continuing and liquidating shares is in the best interests of all
shareholders.
For the above reasons, the Shareholders strongly urge all
shareholders to vote AGAINST Board Resolutions 2 and 3 and FOR
Shareholder Resolution 9 authorising and requesting that the Board
offer each holder of Company shares a one-time election to
redenominate such shares as either continuing shares or liquidating
shares as set forth in such Resolution (endnote 6).
III. The Board composition should be changed for the benefit
of all shareholders
The Shareholders are concerned with the following actions taken
by the Board:
- As described above, shareholders' request that the Company hold
annual general meetings and lower the EGM Threshold was rejected,
and the Company only reversed its position after a larger group of
shareholders wrote again requesting these changes. Even after
agreeing to these changes, the Board's proposals include only
holding annual general meetings starting in 2013 rather than
immediately in 2012, and include only reducing the EGM Threshold to
15 per cent., rather than 10 per cent. which the Shareholders
believe is the industry standard. We believe that the Board should
not have resisted, and should not continue resisting, suggested
improvements to corporate governance.
- Similarly, the shareholders' letter of 20 June 2011 requested that the Board reduce the
representation of the Manager on the Board, but this request was
also rejected. The Board justified its decision by stating
that "at all times since ARCH's admission to AIM, there have been
at least two manager representatives on the Board." The
Shareholders believe that the maintenance of the status quo is not
an adequate reason to continue with this practice. Indeed,
the Circular accepts that having two manager representatives on the
Board exceeds the AIC Code of Corporate Governance. The
Shareholders are concerned that the Board again only acquiesced to
limited implementation of this proposed improvement in corporate
governance after further requests by shareholders.
- In the Circular convening the Board EGM, the Company proposes
to amend its articles of association to "reconfirm and enshrine"
the continuation vote. However, the continuation vote was included
in the Company's AIM admission document dated 20 June 2006. The Shareholders believe that the
Company is already obliged to hold a continuation vote in 2013,
whether or not Board Resolution 1 passes – and so question what the
effect would be of Board Resolution 1 not being passed given the
high voting threshold. The Shareholders believe that the Board
should not seek to present this proposed amendment to the articles
of association as a grant of further rights to shareholders.
- On 1 December 2010, the Board
announced a change to its distribution policy from one of
distributing all free cash to one in which only income and profits
are distributed. The Shareholders are concerned that this
change may have contributed to the widening of the discount to NAV
of the Company's shares from 8 per cent. as of November 2010 (endnote 7) to as much as 44 per
cent. (endnote 8) in October 2011
(before subsequently narrowing to approximately 34 per cent. as of
14 November 2011 (endnote 9)).
The Shareholders believe that the Board should be committed
to minimising or eliminating any discount to NAV.
- Besides a minor amendment to the form of payment of the
performance fee in 2009, the Board has not made any material
amendments to the management agreement. We believe that the Company
should have sought to renegotiate the Manager's terms of
engagement, given the Manager's abovementioned performance and that
the management agreement was entered into in 2006, prior to the
financial crisis, following which asset management terms in the
market have become more competitive.
- Although shareholders addressed their letter of 20 June 2011 to the Board, the reply of
16 July 2011 was written and sent by
the Manager's staff. Moreover, the reply to the shareholders'
letter of 5 October 2011 was sent on
the Manager's letterhead before it was re-sent on the Company's
letterhead.
Given these concerns, the Shareholders strongly believe that the
Board must be wholly independent of the Manager, and that the
current Chairman, who has overseen the Board during this time,
should be removed from the Board. To replace the current Chairman
and the two Manager representatives currently on the Board, the
Shareholders are nominating three new directors:
- Timothy Rucquoi-Berger is one of
the two owners/partners of Natixis Private Equity Asia which
presently manages and owns a small portfolio of businesses in
China. He previously set up
and managed a USD250m private equity
fund, Steel Partners China Access I LP. He is a well-known
China analyst who has worked in
Greater China since 1987. He
was one of the first Westerners to gain access to local government
operations as an advisor to the Liaoning provincial government from 1996 to
1999 and then the Shenyang
municipal government from 1999 to 2001 where he gained extensive
experience restructuring Chinese companies and arranging for trade
sale, stock market listing or debt financing. Mr.
Rucquoi-Berger has an extensive network of business and government
contacts from over 15 years on the ground investment banking
experience in China having worked
in M&A, private equity and initially investment banking and
research with prestigious firms such as HongKong Bank, Asia
Securities and Shenyin. Mr. Rucquoi-Berger was educated at the
University of New York and
Harvard Business School and is a
Belgian native. He is fluent in French, English and Chinese
(Mandarin and Cantonese).
- John Chapman is a lawyer and
Chartered Financial Analyst (CFA) specialising in representing
shareholder interests in connection with the operation and
management of investment funds and ancillary assets. His
experience includes investment funds domiciled in numerous
jurisdictions and investing in various asset classes, including
debt, equity and property, in both developed and emerging markets.
Mr. Chapman has served as the chairman, an executive
director, and as a non-executive director of many publicly traded
companies, including AIM-listed funds investing in private equity
in emerging markets. Earlier in his career, Mr. Chapman
practiced commercial litigation with a large law firm in
New York City, served as a federal
prosecutor with the United States Department of Justice handling
white collar criminal cases, was a senior manager with Price
Waterhouse resident in eastern Europe, was a consultant to the World
Bank and many foreign governments on securities regulation and
financial sector development in the Middle East, Africa, Asia
and emerging Europe, and was a
Senior Advisor to the United States Treasury Department. Mr.
Chapman is a member of the New York
State Bar Association and the CFA Institute.
- Norman Crighton has more than 20
years' experience in the closed-end fund industry across a broad
set of functional roles including investment banking, institutional
sales, corporate finance, research, market making, and investment
management. He began his career at Olliff and Partners as an
analyst before moving on to the institutional sales desk where he
specialised in offshore closed-end funds. In subsequent positions
at LCF Edmond de Rothschild and Merrill Lynch, Mr. Crighton
broadened his experience into closed-end funds globally and
developed corporate finance and restructuring skills in numerous
sectors and jurisdictions. At Jefferies International Limited, he
led a team involved in all aspects of investment banking for
closed-end funds. Most recently, Mr. Crighton ran a hedged
portfolio of closed-end funds and led the restructuring of several
holdings while employed with Metage Capital Limited.
The Shareholders believe that these changes to the Board are in
the interests of all shareholders and urge all shareholders to vote
FOR Shareholder Resolutions 1-6 pertaining to the appointment and
removal of directors.
Conclusion
We are united in our belief that the Company's corporate
governance practices, capital structure and Board composition
should be changed as described above and that the Board Resolutions
are inadequate to achieve this. As such, the Shareholders urge all
shareholders to vote against ALL of the Board Resolutions and in
favour of ALL of the Shareholder Resolutions, as they intend to do
so in respect of their beneficial shareholdings.
For further information, please contact:
Domenic Brancati or Mark Harwood
Georgeson Corporate Advisory
Telephone within the United
Kingdom: 0800 923 1512
Telephone outside of the United
Kingdom: +44 207 019 7025
Email: ARCShareholders@Georgeson.com
For media inquiries, please contact:
Shawn Pattison or Patrick Clifford
The Abernathy MacGregor Group
+1 212 371 5999
Notes:
If you are in any doubt as to the action you should take, you
should seek your own financial advice immediately from your
stockbroker, bank manager, accountant or other independent
professional adviser duly authorised under the Financial Services
and Markets Act 2000 or, if you are not resident in the
United Kingdom, from another
appropriately authorised independent financial adviser in your own
jurisdiction.
No offer, invitation or inducement to acquire or dispose of
shares or other securities in the Company is being made by or in
connection with this document.
Endnotes:
(1) This resolution is advisory in nature and will not
amend the Company's articles of association.
(2) This resolution is advisory in nature and will not
amend the Company's articles of association.
(3) Sources for table: Bloomberg and Company releases.
Key assumptions in relation to returns set forth in the table:
returns are calculated from the date of the closing of the
respective offering at the respective offering amounts; dividends,
if any, are reinvested on their respective ex-dividend dates; each
investment is realised on 14 November
2011 at the closing price of the relevant security (or the
most recent published NAV of 30 September
2011, for the Company NAV return calculation); shareholders
did not participate in any of the Company's tender offers or share
buybacks (if shareholders did participate in such tender offers or
share buybacks they may have experienced a higher return).
(4) Sources: Bloomberg, Morningstar.
(5) Source: Morningstar.
(6) This resolution is advisory in nature and will not
amend the Company's articles of association.
(7) Source: Company Announcement of 1 December 2010.
(8) Source: Company Announcement of 19 October 2011.
(9) Source: Morningstar.
APPENDIX: Shareholder Resolutions
Ordinary Resolutions
1. THAT Allan Hui Liu be removed
from office as a director of the Company with immediate effect.
2. THAT Christopher Marcus Gradel
be removed from office as a director of the Company with immediate
effect.
3. THAT Guy Heald be removed from
office as a director of the Company with immediate effect.
4. THAT Timothy Rucquoi-Berger be
appointed as a director of the Company with immediate effect.
5. THAT John Chapman be appointed
as a director of the Company with immediate effect.
6. THAT Norman Crighton be
appointed as a director of the Company with immediate effect.
7. THAT the Company be authorised and requested to, as soon as
is practicable, require annual general meetings of the Company to
be held every year.
8. THAT the Company be and hereby is authorised and requested to
reduce the number of shares necessary to requisition an
extraordinary general meeting of the Company from no less than 25
per cent. to no less than 10 per cent. of the issued shares in the
capital of the Company carrying the right of voting at general
meetings of the Company.
9. THAT the Company be authorised and requested to offer each
holder of shares in its capital a one-time election to redenominate
such shares as either continuing shares or liquidating shares in
the Company, such that:
a) the Company's assets and liabilities are divided pari passu
into a "continuing pool" and a "liquidating pool" in proportion to
the number of shares converted to the associated share class in
accordance with the election of the holders of such shares;
b) upon asset sales, the continuing pool may reinvest some or
all of the resulting proceeds, whereas the liquidating pool will
distribute as much as is practicable of the proceeds of its asset
sales;
c) there is no limit on the number of shares which may be
redenominated to each share class, and
d) both share classes remain admitted to trading on AIM and
retain the voting rights attaching to ordinary shares.
SOURCE British Steel Pension Scheme; Henderson Global Investors;
Northview Investment Fund; VR Capital Group; QVT Financial LP