3i shareholders back rights rights issue but question strategy

This article is provided to FT.com readers by dealReporter—a news service focused on providing insightful intelligence on event driven situations to investors. www.dealreporter.com

--------------------------------------------------------------------------------------------------------

3i Group’s leading institutional shareholders have backed the UK-listed private equity firm’s rights issue, but attacked the company over its strategy and demanded faster disposals. One shareholder told dealReporter he was only supporting the deal in the interests of the company. He said: “I’m not sure backing of the rights issue is a reflection of [backing] the company’s strategy.”

The shareholder said that the company’s results, in which net asset value halved in the year to the end of March from GBP 10.77 per share to GBP 4.96, was disappointing: “From a shareholder’s perspective these are extremely disappointing results. Their decision to oversize has left them extremely vulnerable and really undone them.” He said the company would need to make more disposals to de-leverage its position, despite undertaking the 9 for 7 rights issue, priced at 135p - a 39.8% discount to the theoretical ex-rights price. “What we would like to see is the company disposing of some of its larger quoted investments. The big problem for us is its shareholding in Venture Production - we think something must happen there.”

The shareholder was also scathing about how the company’s strategy has been communicated to investors. “Communication has been poor. There has to be serious questions about serious oversight here.” He said he expected “some frank questions to be asked behind the scenes,” at the time of the shareholders’ meeting to approve the rights issue on 11 June. He said 3i’s management team led by chief executive Michael Queen “would have to deliver.”

Another leading institutional shareholder said he was supporting the issue but also had concerns over the company’s strategy. “They parted from a prudent course - so the damage was self-inflicted.”

The second shareholder said: “A high level of gearing is not acceptable.” It does seem reasonable to get gearing by having a rights issue – it’s very much in the interests of shareholders.”

3i is understood to have pre-marketed the rights issue, which will be used “to reduce net debt and strengthen its balance sheet,” to its top 15 shareholders. 3i rose 14% to 387p today, giving it a market cap of GBP 1.43bn. The company has seen its share price rise 121% above its 52 week low of 174.5p on March 9.

--------------------------------------------------------------------------------------------------------

For more information or to inquire about a trial please email sales@dealreporter.com or call Europe/EEMEA: +44 (0)20 7059 6160 Americas: +1 212 686-3076 Asia-Pacific: +852 2158 9714