Analysis of a deal involving the Property Income and Growth trust (PIG) has raised red flags for inv...
Analysis of a deal involving the Property Income and Growth trust (PIG) has raised red flags for investors in zero dividend preference shares, who may be frozen out of voting on takeover bids in a way that involves managers securing their own mandates.
According to market data provided by Iimia head of investment trusts Nick Greenwood, the chief executive of PIG's existing management company, BC Asset Management, managed to use the voting power of ordinary shares to see off an alternative bid.
Because of this, holders of zeros saw themselves accepting an offer worth about 59p per zero instead of the £1 being offered by ING Real Estate.
The winning bidder is Land Race, a Guernsey based company wholly owned by David Bruce, chief executive and majority shareholder of BCAM.
"It's not doing the sector any favours," Greenwood says.
The deal raises the prospect of zeros holders in other trusts being forced to rush to their prospectuses to find out what relative weighting zeros might have in any situation deemed to constitute "material changes".
And it raises the prospect of managers finding a way to maintain mandates despite poor performance.
There is no suggestion that the latter may or may not be the case in this instance.
However, given the intense focus by the AITC, FSA and Treasury Select Committee on the rules governing the interaction between management and boards of trusts, BCAM's action does come at a delicate time.
At the very least, Greenwood says, it underlines the importance of caveat emptor - which itself lies at the heart of the arguments going back and forth on the issue of stronger regulation of the investment trust industry.
Greenwood says he believes the use of ordinary shares to force through bids to the detriment of other share classes is unlikely to become common practice because there is a risk institutional owners of zeros based in the City may feel aggrieved and refuse to do future business with the manager involved.
Nevertheless, it is another risk factor that splits shareholders must bear in mind.
To promote 'long-term investment'
Switching 'hard and expensive'
Smaller funds still packing a punch
To drive progress