GNE Gne Grp

 

TIDMGNE 
 
RNS Number : 8338N 
GNE Group PLC 
25 February 2009 
 

 
 
 
 
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| Press Release                          |                   25 February 2009 | 
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GNE Group plc 
 
 
('GNE or 'the Company') 
 
 
Letter posted to shareholders 
 
 
In response to a letter received by GNE Group plc on 20 February 2009 from some 
shareholders ("Shareholder Group"), the Company yesterday posted a letter of 
response to all shareholders from its Chairman David Port, the text of which is 
detailed below. The letter received from the Shareholder Group has also been 
posted to shareholders but can also be viewed as a PDF by following the link at 
the end of this announcement. 
 
 
Dear Shareholder, 
 
 
Enclosed you will find a letter from some shareholders ("Shareholder Group"). 
Under section 314 of the Companies Act 2006, GNE Group plc ("the Company" or 
"GNE") is obliged to distribute the Shareholder Group letter to all 
shareholders, but is not endorsing or supporting the content of the 
communication. The Shareholder Group letter raises a number of issues which your 
Board wishes to clarify so that you can make a balanced judgement when deciding 
how to vote at the forthcoming general meeting to be convened on 4 March 2009. 
It should be emphasised that the Circular (issued by the Company on 14 February 
2009) (the "Circular") incorporated all necessary and appropriate information 
and this letter is provided in response to the Shareholder Group statements to 
ensure that all shareholders in the Company receive an accurate and balanced 
perspective. 
 
 
In their letter the Shareholder Group comment on the current share price of GNE. 
Over the last 12 months the Company's share price has substantially outperformed 
the FTSE 100 index. In fact in the last 12 months GNE's share price has risen by 
51% whereas the FTSE 100 has declined in value by 35% and the AIM 100 Index has 
declined by 63%. Historically GNE shares have always been illiquid which, the 
Directors believe, makes the share price vulnerable to significant movement in 
price from relatively small trades. Any trade, even of a relatively small number 
of shares can have a significant effect on the share price. The GNE share price 
peaked at GBP1.90 as a result of Mr Ratcliffe's acquisition of his stake, a 
higher price than achieved in September 2008 when the disposal of Petrol Express 
Ltd was announced. In their letter the Shareholder Group also mention that 
investment trust companies typically trade at a discount to net asset value and 
whilst this can be true, it is unfortunately a feature for many companies across 
many sectors in the current economic climate. It has also been true for GNE for 
many years. 
 
 
The Shareholder Group letter also seeks further information on Mr Ratcliffe's 
background and experience. Mr Ratcliffe has been involved in the technology 
industry for 20 years working with Nokia, Dell Computer and more recently 
Microgen.  A summary biography of Mr Ratcliffe can be found in the Appendix to 
this letter. The Board believes that the simplistic comment on the Microgen plc 
("Microgen") share price movement is selective and does not take into account 
the total shareholder return (TSR); the significant share price increase which 
had occurred upon Mr Ratcliffe's investment in Microgen being announced in April 
1998; and the fact that the FTSE 100 has declined by approximately 35% over the 
same period. In particular, during the past year alone, Microgen has returned 
GBP10 million to shareholders through dividends and a tender offer and in the 
period from 1 May 2006 to 31 December 2008, independent analysis confirms that 
Microgen's total shareholder return (TSR) exceeded the FTSE Software & Computer 
Services index by 9.7%. Microgen plc announced its results for the year ended 31 
December 2008 on 24 February 2009 in which the company reported another year of 
strong profitability and cash flow despite the current turmoil in the markets. 
 
 
As set out in the Circular your proposed Board will also include Mr Michael 
Jackson, who is a well known and highly regarded technology investor and is 
Chairman of Elderstreet Investments Ltd, a specialist technology fund management 
group specialising in investing in small technology companies. Mr Jackson is 
also a former chairman of The Sage Group Plc, Computer Software Group plc and 
Netstore plc. In addition, your Board will include significant experience in 
managing investment companies : Mr Jimmy West was Managing Director of Globe 
Investment Trust plc and is currently Chairman of Gartmore Fledgling Trust, New 
City High Yield Trust plc, Jupiter Second Enhanced Income Trust plc and is a 
non-executive director on a number of other investment companies; and Mr Graham 
Warner is the Finance Director of J O Hambro Capital Management Limited, a well 
known fund management group. 
 
 
With regard to Board remuneration, the Shareholder Group does not recognise that 
the total Board remuneration following the adoption of the new investing 
strategy will be lower than current levels. Furthermore, your Board, having 
consulted with its advisers, are satisfied that Mr Ratcliffe's proposed salary 
is appropriate, being in line with that of the current GNE Chief Executive. (For 
reference the average AIM Chief Executive receives around GBP268,000 per annum 
plus benefits.) 
 
 
The Shareholder Group also suggest that the cost of becoming an investment trust 
company ("ITC") would be GBP1,757,000. Your Board disagrees with this. Only some 
of the costs and termination fees shown in the Circular (to which the Board 
believes they are referring), are concerned with becoming an ITC. Your Board 
believes that not only would the majority of these costs be incurred in pursuing 
a winding-up, as proposed by the Shareholder Group, but it is likely that 
significant further legal and other costs would result. As such, the Directors 
believe shareholders would receive a figure below that indicated by the 
Shareholder Group and that any winding-up would take considerable time to 
achieve due to the legal process and issues associated with such an approach. 
 
 
Your Board throughout this period has always acted in what they believe to be 
the best interests of the shareholders as a whole. The Board also recognise the 
disappointment of some shareholders regarding the loss of the intended special 
dividend and therefore have previously announced an intention to propose a share 
buy-back at the Annual General Meeting to provide the opportunity for those 
shareholders not wishing to participate, to have some liquidity. The Board 
understands this is generally a more tax advantageous way of returning cash to 
shareholders, particularly for smaller UK shareholders, than the payment of a 
dividend. The Board intends to implement this buy-back programme once the 
accounts for the year ended December 2008 have been filed with Companies House. 
 
 
When your Board was approached with the new investing strategy in December it 
considered the proposed new investing strategy to stand a greater chance of 
success in the current economic climate as stock markets have reduced the value 
of many companies to the point where the Board believes there to be some 
significant investment opportunities. The Company intends to be actively engaged 
with its investee companies to the benefit of its shareholders and the new 
investing strategy should not be confused with other "passive" investment trusts 
with which the Board believes the Shareholder Group letter is inappropriately 
attempting to compare it. Mr Ratcliffe's experience in managing technology 
companies and delivering performance improvement is highly relevant to this 
proposed approach, particularly in the current market. 
 
 
Finally, the Shareholder Group refer to the voting in favour of the previous 
investing strategy. However, it should be highlighted that the majority of the 
shares voted in favour in October 2008 are no longer held by the same 
shareholders. At least 38% of the shares in the Company have changed hands and 
been acquired by new shareholders since Mr Ratcliffe became involved. 
 
 
The Board believes that with the irrevocable undertakings it has already 
received - approximately 35% - when combined with expected support from other 
investors, the change in strategy associated with Resolution 1 of the Circular 
will be approved. 
 
 
The Shareholder Group requesting the letter to be sent to all shareholders 
represents 10.6% of the Company's shareholders. 
 
 
In the event that Resolution 1 is passed, voting against the special resolutions 
(Resolutions 3 and 4 in the Circular), will not prevent the proposed investment 
strategy proceeding but will prevent the Company from being able to benefit from 
the tax advantages of investment trust status. As such, the Board would urge all 
shareholders to vote in favour of all resolutions to enable it, as explained in 
the Circular, to take full advantage of the favourable tax benefits of becoming 
an investment trust. 
 
 
Yours faithfully, 
 
 
David Port 
Chairman 
 
 
Appendix 1 - Summary biography of Mr Ratcliffe 
 
 
Mr Ratcliffe (47) has a BSc in Physics and an MBA. After starting his career as 
an electronics development engineer, he moved into sales and marketing. At age 
28, he was asked by his then employer Technophone Limited, a UK mobile phone 
manufacturer subsequently acquired by Nokia, to turnaround the small USA 
subsidiary and launch a new product. In 18 months, Technophone became one of the 
leading suppliers of mobile phones in the US market. 
 
 
Upon leaving Nokia/Technophone, Mr Ratcliffe undertook two turnarounds in the PC 
industry in the USA before being recruited by Dell Computer as Head of its 
European business. Under Mr Ratcliffe's leadership, Dell Europe grew from 
turnover of around US$800 million to over US$2 billion in just three years, with 
consistent profitability and strong cash flow. During the early part of Mr 
Ratcliffe's tenure, a number of the subsidiaries required turnaround or 
performance improvement actions. 
 
 
Mr Ratcliffe invested in Microgen plc in May 1998 and became a non-executive 
director until he left his employment with Dell Computer in July 1998. At that 
time, Microgen plc was involved in microfiche and printing and was experiencing 
significant challenges, both operationally and financially. Within a few months, 
the non-UK operations had been sold and the microfiche operations outsourced. 
Thereafter a series of acquisitions have been undertaken by Microgen, including 
both public and private companies, many of which have been turnaround or 
underperforming situations. 
 
 
In 2006 Mr Ratcliffe was requested by one of the institutional shareholders in 
Microgen to assist the Board of TTP Communications plc in reviewing its 
strategic options which ultimately led to TTP being acquired at a premium in 
excess of 240%. 
 
 
Microgen plc announced its results for the year ended 31 December 2008 on 24 
February 2009 in which the company reported another year of strong profitability 
with excellent cash flow, despite the current turmoil in the markets. During the 
past year, Microgen has returned GBP10 million to shareholders by way of 
dividends and a tender offer and in the period from 1 May 2006 to 31 December 
2008, independent analysis confirms that Microgen's total shareholder return 
(TSR) exceeded the FTSE Software and Computer Services Index by 9.7%. 
 
Letter from the Shareholder Group - 20 February 2009 
http://www.rns-pdf.londonstockexchange.com/rns/8338N_-2009-2-24.pdf 
 
 
- Ends - 
 
 
For further information: 
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| GNE Group plc                            |                            | 
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| David Port, Executive Chairman           |  Tel: +44 (0) 20 7398 7702 | 
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|                                          |                            | 
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| Seymour Pierce                           |                            | 
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| Richard Feigen / Sarah Jacobs            | Tel: +44 (0) 20 7107       | 
|                                          | 8000                       | 
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|                                          | www.seymourpierce.com      | 
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| Investec Investment Banking              |                            | 
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| Rowena Murray                            | Tel: +44 (0) 20 7597       | 
|                                          | 5000                       | 
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Media enquiries: 
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| Abchurch                                 |                            | 
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| Henry Harrison-Topham / Monique Tsang    | Tel: +44 (0) 20 7398 7702  | 
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| monique.tsang@abchurch-group.com         | www.abchurch-group.com     | 
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This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
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