A major shareholder has thrown its weight behind Interserve’s board in the their ongoing struggle for control of the outsourcer against US hedge fund Coltrane Asset Management, City A.M. can reveal.
Aberdeen Standard Investments (ASI), which controls 4.6 per cent of Interserve’s shares, on Thursday endorsed the firm’s rescue deal designed to to stop it going into administration.
The deal needs to win 50 per cent of shareholder approval at a vote on 15 March to go ahead, otherwise Interserve will go into a pre pack administration, but 27 per cent shareholder Coltrane has opposed it.
Workers at the NHS and the Foreign Office are among Interserve’s 39,000 UK employees, and 70 per cent of its annual £2.9bn turnover comes from the government. The delivery of hundreds of public services across the country would come under threat if the firm went under.
But the company has racked up more than £630m worth of debt in recent years, and is scrambling to push through a financing package, known as the deleveraging plan, with lenders RBS, HSBC and BNP Paribas to save it.
Coltrane has been railing against Interserve’s proposals since early February because they dilute shareholder value to just five per cent, handing the rest to the lenders.
A week before, the fund threatened to sue Interserve’s board over the matter (27 February), eviscerating the outsourcer’s plan as a “terrible” deal, before issuing a fresh set of demands this week which involved instead giving investors 35 per cent control.
Interserve quickly rebuffed the plan (5 March), saying it could not consent to Coltrane’s request “without risking the future of Interserve together with its employees, pensioners, customers and suppliers”.
Andrew Hunt, investment director at ASI a top-five shareholder, said: “We recognise the financial challenges facing the company and believes that the deleveraging plan is in the best interests of Interserve and all its stakeholders, including shareholders, as a whole.
"We believe that the plan should be voted through and that Interserve remain a listed business.”
Winning the proxy war
ASI's support comes hours after two big hitting proxy advisors said they also supported Interserve’s deal, marking a major victory for the outsourcer.
Pensions and Investment Research Consultants (PIRC) followed another advisor, Institutional Shareholder Services (ISS), in throwing its weight behind the debt-laden outsourcer’s deal, City A.M. revealed earlier on Thursday.
Advisors at PIRC, the biggest independent shareholder advisory firm in Europe, said of Interserve’s plan: “In light of the given necessity of this proposal, a vote in favour is recommended.”
The report also addressed Coltrane’s concerns that the board’s management of the issue had been “reckless” and shown “negligence at best”.
“There is sufficient balance of independent representation on the board which provides assurance that the proposal is undertaken with appropriate independent judgement and oversight,” PIRC’s report said.
The news came after it emerged proxy adviser ISS, the biggest in the US, had also told shareholders Interserve’s plan was the best option, driving the firm's stock down eight per cent on Thursday afternoon.
First reported by the Financial Times, ISS said although the deal was “not without concern for the shareholders,” it should be supported because it would “avoid potential insolvency”.
It also said the fact shareholders had the option to claw back more value on top of the five per cent initially handed to them would lessen the “dilutive effect to participating shareholders”.
Running down the clock
The news gives Interserve’s chief executive Debbie White just over a week to ensure more than half the firm’s shareholders back her plan rather than siding with Coltrane.
But doubts remain over whether she will succeed, as more than one-third of shareholders have indicated they will vote down the deal. Coltrane last month enlisted the support of six per cent shareholder Farringdon Capital Management, a Dutch hedge fund, in its struggle for control over the outsourcer.
Chairman Glynn Barker said this is a “critical time” for Interserve. The company’s proposed rescue deal is “the only plan today that provides a certain future for Interserve, preserving some value for shareholders while securing jobs, pensions, and continuity of services,” he said.
“In the absence of any other plan that is capable of implementation, further uncertainty continues to risk an outcome in which there is no return to shareholders, including Coltrane, and considerable disruption to the business.”
Both Interserve and Coltrane declined to provide formal comment on Thursday afternoon.