advance UK TRUST HAS BUILT UP 10% STAKE IN DRESDNER UK SMALLER COS AND IS LOOKING FOR AN EXIT
The board of the Dresdner RCM Smaller Companies investment trust is to hold an EGM on 10 December in response to a requisition from the Advance UK Trust.
The board received the requisition on 1 November, which requested an EGM to consider an ordinary resolution that would require the board to put forward proposals within two months. These would enable shareholders to either continue with their holding in the company or an alternative fund, or receive cash at 100% of formula asset value (FAV).
In response to this, the board said that Advance, which owns 10% of the trust, is seeking a short-term gain at the expense of other shareholders, and pointed out that it only became a significant shareholder in April 2001, almost trebling its holding shortly before lodging the requisition.
In a statement to its shareholders, Advance said the Dresdner RCM Smaller companies trust has been one of the worst performing smaller companies investment trusts and uses, selectively, performance figures provided by the AITC.
Simon White, head of investment trusts at Dresdner, however, believes Advance's arguments are flimsy and said that although the trust has underperformed in the short term, long-term it has outperformed its benchmark.
Over one year to 14 November 2001, in share price terms, the trust is ranked 20 out of 32 in the UK smaller companies sector, returning -35% compared with the sector average -27.1%.
However, over three years the trust is ranked eight out of 27, returning 55.4% compared with the sector average 46.4%.
Don Lawrence, chairman of the Dresdner trust, said: 'Advance is using, selectively, short-term performance figures for a single year to suit its own short-term agenda. The company is not a poor performer, as Advance has claimed. It is, in fact, a significant outperformer over any meaningful period.'
Lawrence said that the board believes approval of the resolution would force it to take action which could result in substantial costs to shareholders and the company being placed in liquidation, thereby undermining the benefits for long-term investors, which are inherent in the firm.
As such, Lawrence said, the board believes the resolution is not in the interests of the company and shareholders as a whole. It strongly recommends that shareholders vote against it.
White said now is not a good time to liquidate because with the markets having fallen 25%, together with the fact that liquidity in the sector is poor, the impact of unwinding the debt is at its greatest.
Another argument from Advance was that the £33.9m trust was too small, but White said he does not think its size is a disadvantage because it makes it more flexible, hence its good long-term performance.
Lawrence said: 'The board believes Advance is not, and never intended to be, a long-term shareholder. Indeed, the board queries the rationale for Advance, having actively bought a significant holding in a trust and asset class it evidently feels has only limited long-term prospects.'
Putting the tech into protection
Square Mile’s series of informal interviews
Fallout from Haywood suspension
Launching later in 2019
£80bn funds under calculation