Gresham House Strategic plc
20 October 2021
Statement regarding:
Response to announcement by Gresham House plc
The independent directors of Gresham House Strategic plc (“GHS” or the “Company”) (“Independent Board”) note the announcement by Gresham House plc (“GHE”) published on 19 October 2021, and further comments made by GHE to the media, which contain a number of material inaccuracies and do not, in the view of the GHS Board, take account of the best interests of all shareholders.
1. “The flaws in this lengthy process and its findings led to a conclusion that focused on one shareholder's liquidity to the exclusion of all others.”
GHE's announcement mischaracterises the conclusions of the strategic review: the Independent Board's conclusion was not to provide GHE with liquidity but rather to appoint Harwood Capital LLP as the Company's new investment manager due to the substantial benefits to shareholders set out in the announcement dated 11 October and summarised below.
As announced on 11 October 2021, the conclusions of the strategic review focused on several key objectives:
- Continuing strong investment performance
- Lowering the Company's cost base to be in line with market standards
- Increasing the scale of the Company in Net Asset Value (“NAV”) terms
- Ensuring strong corporate governance arrangements are in place between the GHS Board and its investment manager
The Independent Board notes that the strategic review has delivered to shareholders, inter alia, a significant fee reduction, an investment manager with an outstanding track record and a relationship agreement between the Company and Harwood Capital LLP (“Harwood”) which seeks to ensure the independence of the GHS Board in governing the Company in the best interests of all shareholders.
2. “The Gresham House Board believes all shareholders of GHS should be offered liquidity to realise their full investment at NAV, rather than just Gresham House, as has been concluded by GHS.”
The offer to buy GHE's shareholding in GHS was not made by the GHS Board but by Harwood. This is a potential transaction between two third-party institutions and does not involve the Company's resources. In our consultation with GHE as shareholder during the strategic review, GHE made clear that they would not want to hold shares in an investment company they did not manage and Harwood therefore made the offer to GHE from its own resources in order to remove a substantial share overhang in the interests of all other shareholders.
3. “The conclusion of GHS' five month strategic review has failed to deliver … a new chair for its board…”
The process to recruit a new chair is well advanced. As announced on 15 October, the board changes proposed by GHE are an unnecessary intervention at a time when the GHS Board is a substantial way through the process of appointing a new independent chair. Had GHE not requisitioned a general meeting, the announcement of a new independent chair could have been made by now. A broader review of the GHS Board's composition is expected to follow the appointment of a new chair. It is GHE's actions which are delaying this process, not GHS's.
4. “Best practice corporate governance sits at the heart of Gresham House's strategy as an ESG-focused investment business, and the [GHE] Board believes that corporate governance principles have not been properly observed by GHS in the conclusions of its strategic review”
GHE does not state which corporate governance principles are at issue here. The GHS Board was fully independent of its investment manager until GHE used its influence as a major GHS shareholder to require the resignation of the previous chairman and the appointment of Graham Bird as its representative and a non-independent director, and now seeks to interfere again. If the changes requested by GHE were to be carried through at the proposed general meeting, a majority of GHS Board members would be GHE nominees, which the Independent Board believes goes against the AIC Code of Corporate Governance.
The GHS Board also notes that the independence of the GHS Board was established in 2015. GHS governance statements have stated that GHS was formed in 2015 as a new company with a new name, new investment strategy, new shareholders, new manager and therefore all the directors (under the AIC Code of Corporate Governance) are independent and within their normal acceptable tenure.
5. “The proposed EGM resolutions, for the return of cash on the GHS balance sheet to all its shareholders and the realisation of GHS' assets over the next two years, would enable all its shareholders to access an attractive return on their investment in a manner that will realise appropriate value.”
A conclusion of the strategic review was that a run-off of the portfolio was unlikely be in the best interests of all shareholders, having received input from Gresham House Asset Management Limited (“GHAM”) which highlighted the risks of a forced selling environment.
6. “The Gresham House Board has therefore requisitioned a meeting of GHS' shareholders to address [the outcome of the strategic review which removed GHAM as asset manager] democratically and to reach a conclusion that is in the interests of all its shareholders”
The Independent Board does not consider that the GHE proposals take account of the best interests of all GHS's shareholders as a whole, notably the substantial proportion who would like to retain an ongoing investment (and for whom the proposed wind up could be highly tax inefficient). It is not clear that a liquidation of GHS's portfolio as proposed by GHE will deliver best value to shareholders and this was highlighted in advice from GHAM during the strategic review.
Helen Sinclair, Interim Chair of GHS, said:
“The Independent Board believes that a substantial proportion of shareholders wish to retain a continuing investment in this Company, are supportive of the existing Investing Policy, and are supportive of the Independent Board's proposals as regards the future management of the Company. We continue to feel that these views should also be taken into account notwithstanding the demands of the largest shareholder to put the Company into run-off and return capital to shareholders, irrespective of the tax implications and whether or not this is in all shareholders' best interests. We and our advisers will continue to consult with GHS shareholders and explore all options which are in the best interests of all shareholders.“