Fund’s shares could rise 35% if buyback restrictions lifted: Investors | Wilnesh News
Fund manager Brian McCormick said Caledonia Investments’ share price could soar more than 35% if restrictions on share buybacks were lifted. Caledonia invests in private companies and funds as well as public companies such as Microsoft, Oracle, Moody’s, Philip Morris and British American Tobacco. The company, which trades as an investment trust on the London Stock Exchange, says its assets are worth 3 billion pounds ($3.8 billion). The stock also trades over-the-counter in the United States. McCormick, head of Jupiter Asset Management’s Jupiter Global Value Fund, said Caledonia’s share buybacks were restricted due to shareholding restrictions set out in the UK’s Takeovers Code. The Code was enacted to protect the interests of minority shareholders and make it difficult for important minority shareholders to become majority shareholders. The code states that any shareholder who wants to own 50% or more of a company must make an offer to acquire the shares of all remaining minority shareholders. While the code serves an important purpose, McCormick said that in Caledonia’s case, it is preventing the company from taking actions that would benefit all shareholders. “If companies can remove restrictions that prevent them from buying back their own stock in a meaningful way, then there’s a catalyst here,” McCormick told CNBC Pro at the London Value Investor Conference on May 15. CLDN- How will the GB YTD line repurchase help? McCormick said that with Caledonia’s shares currently trading at a significant discount to net asset value (NAV), “it would be very, very accretive for the company to use more of its own cash to repurchase stock.” NAV represents investment. The value of the fund’s underlying assets. Caledonia’s net asset value is £53.69 per share, which means the market is currently undervaluing the company by around 37%, as the company’s shares trade at £33.75 per share. In theory, this means that if the fund were liquidated and liquidated, the cash returned would be 37% greater than the fund’s current stock market value. Furthermore, when the fund made share buybacks with shares trading below its net asset value, it was buying its own assets at a 37% discount. Buying back shares also tends to increase the share price. Caledonia’s Repurchase Restrictions When a company repurchases shares, those shares are removed, which can increase the remaining shareholders’ ownership percentage. In the case of Caledonia, the Cayzer family and related parties currently own less than 49% of the company. If the buy-back causes the ownership level to rise above 50%, the provisions of the Takeovers Code will be triggered. Caledonia Chief Financial Officer Robert Memmott acknowledged the buyback limits but said the company would continue to buy back stock within those limits. “During March and April, we purchased 290,000 shares at an average discount of 36%, adding £0.101 to net asset value per share,” he said on the company’s earnings call last week. “We will continue to buy back, But within our limits.” Analysts also believe Caledonia’s current restrictions on share buybacks are suppressing the stock price. “(The shares trading below net asset value) do provide some value, but given the size of the Kaiser family concert party, we always expect the discount to be relatively large, which also limits the size of any share buybacks that can be made. a factor,” Stifel analyst Iain Scouller said in a May 21 note to clients. Will Caledonia get the green light? In certain special circumstances, the Takeovers Committee may be willing to grant exemptions that would allow Caledonia to repurchase additional shares, even if doing so would make the Cayzer family the majority shareholder. One of the exceptions is designed for distressed situations, where a business is in dire need of capital and a major shareholder is willing to bail out the business in exchange for more shares. Under normal trading conditions, the Takeovers Code will prevent a company from issuing more shares to shareholders, resulting in an increase in ownership levels. McCormick said Caledonia needs to work directly with the acquisitions group to find a solution. He added that even as a minority investor in Caledonia, he would support any potential move by Caledonia to seek permission to acquire the group. “(Companies) would need to get the panel to agree to a Section 9 exemption, which would allow them to more aggressively repurchase stock under extraordinary circumstances,” McCormick said of the rules blocking buybacks in this case. “The panel has the authority to approve this decision, which is a very clear win-win for all shareholders. We just need an exemption and enhanced protections for minority shareholders to be structured appropriately.”
