Shares in 3i jumped on Tuesday after the private equity group revealed Edward Bramson, the activist investor, was buying its shares.
The stakebuilding, by Mr Bramson’s investment vehicle Sherborne Investors, may signal hidden potential in 3i’s underlying portfolio, investors said.
The purchases started on January 2, 3i said in a statement. Sherborne first built a 0.7 per cent stake and sold it to Jefferies, its stockbroker, which then increased the holding to 1.6 per cent, said the buyout group. In the period from 2 January to 22 January, the volume weighted average price of 3i shares was 239p per share.
Mr Bramson, who was born in London but moved to New York more than 30 years ago, may have lifted Sherborne’s stake to more than 3 per cent, a person with knowledge of the matter said. The unusual disclosure by 3i is partly aimed at seeking clarification on his intentions, ahead of 3i’s trading update on Thursday, another person said.
Shares in 3i, which had risen 50 per cent since May last year, rose 3.2 per cent to 267.1p on Tuesday, making them the biggest single gainer on the FTSE 250.
The private equity group chose to disclose the stake to the market because of Mr Bramson’s specific mandate – buying significant stakes in companies that need turning around, a source close to 3i said. The buyout group said it had not been in contact with Sherborne.
Mr Bramson has led several high profile corporate turnrounds in the last few years, including F&C Asset Management where he is executive chairman and of which one of his vehicles owns 22 per cent. Sherborne declined to comment.
3i has suspended fundraising plans and has been focusing on returning capital to shareholders since Simon Borrows, a former investment banker at Greenhill, took over as chief executive from Michael Queen last year. The company has been cutting 160 jobs – more than a third of its workforce – and shutting down offices after struggling to revive dealmaking in the wake of the financial crisis. It has diversified into debt management and hopes to be able to raise a new buyout fund in a couple of years.
3i is planning to sell four companies this year, including Canadian group Mold-Masters, UK software maker Cívica and Scandlines, a Danish-German ferry operator, people with knowledge of the matter said earlier this month.
Analysts cautioned that most of the company’s share price recovery had already occurred. Bill Barnard, a Société Générale analyst, said he saw “little value to add at 3i given the work already done.”
“Had they bought the shares a year ago, when former CEO Michael Queen was still there, I would have seen it as a restructuring play, but there’s a clear plan now,” said Oriel Securities analyst Iain Scouller, who downgraded the stock to sell last week following the company’s share price rally.
shareholder register of 3i might favour the activist investor. It is made up of large, blue-chip UK investment institutions that have backed the enigmatic 61-year old in the past. BlackRock owns just under 10 per cent and Fidelity owns about 4 per cent.
Mr Bramson has fans among the top UK investment institutions, all of whom backed his appointment as chairman of F&C.
One supporter said: “3i has come out of left field as a target – if it is a target and not some kind of diversionary tactic. But F&C also came as a surprise when he started building a stake there in 2010.
“We would assume, though, that he has done a humungous amount of research into the group and the value of the underlying portfolio and thinks there is money to be made. We are likely to back him again, given the money he has made for us in the past.”
Sherborne Investors Guernsey B was one of biggest initial public offers on Aim last year, raising £207m in November to buy a stake of up to 30 per cent in a publicly quoted UK company.
Among the biggest investors in SigB are Aviva, Threadneedle and Fidelity. The fund was launched as a single purpose vehicle.
Soros Fund Management has also bought shares.
Reporting by Anne-Sylvaine Chassany, Kate Burgess and David Oakley