(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)
By Dominic Elliott
LONDON, June 6 (Reuters Breakingviews) - Shareholders should vote for change at Kleinwort Benson owner RHJ International RHJI.BR. A group of hedge funds have launched a credible attack on the company. RHJ hasn’t delivered a convincing rebuttal. The activist group, led by Equilibria Capital Management, have tabled six resolutions to the company's annual meeting on June 18. Four of those proposals merit support.
The hedge funds want shareholders to replace five members of the nine-strong board; appoint two new representatives from Equilibria; reject the remuneration report; and force RHJ to return 150 million euros to investors. RHJ would otherwise use that money to buy Germany's BHF-Bank in a consortium that includes two of the group's largest shareholders.
RHJ's best parry to the hedgies' demands concerns the distribution to shareholders. RHJ says there is a possibility that BHF's owner, Deutsche Bank (DBKGn.DE), and the rest of the bid consortium may claim damages if it drops its protracted pursuit of the private bank. Faced with that unknown, shareholders should probably play it safe. RHJ has at least pledged to consider paying out the cash should the deal fall through. The difficulty is that shareholders haven’t been given enough information to take a view.
But the fact remains that RHJ shares have performed terribly since the float, while management has pocketed high remuneration. The company simply isn’t delivering. The board needs refreshing to reassure investors that impartial strategy reviews will take place.
The activists' nominated replacements together comprise a decent slate. None of the five substitutes are big names in the industry. But their CVs show they have solid credentials, with a range of expertise. Moreover, they appear independent: none are on the hedge funds' payroll. That said, the activists' request for seats on the board themselves goes too far - together they account for just 4 percent of the share register.
Remuneration may be a symptom rather than the proximate cause of the company's strategic meandering. But the hedge funds' proposal to cap the total pay of senior managers at 500,000 euros unless RHJ turns a profit looks fair. Chief Executive Lenny Fischer spent almost 2 million euros on a corporate jet in just 20 months before that privilege was finally withdrawn. RHJ's defence - that compensation consultants guided pay policy - sounds feeble.
RHJ has been a poor performer for too long and its response to the activists’ charge sheet has been limp. Shareholders should take the chance to give it a kick.
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- Franklin Equity Group, a 15.5 percent shareholder in RHJ International, is considering supporting a proposal to break up the owner of private bank Kleinwort Benson, it said on June 5.
- Five hedge funds led by Equilibria Capital Management on May 28 called for RHJ to abandon its consortium bid for Germany's BHF-Bank and instead return capital to shareholders.
- On June 3, RHJ said shareholders should reject those proposals because the company might face claims for damages from Deutsche Bank, BHF's owner, and from other members of the bid consortium.
- The hedge fund group said on June 4 that it considered RHJ and its management team had destroyed shareholder value by selling a 41 percent stake in publicly-listed Shaklee Global at a discount of nearly 40 percent to the previous day's closing price.
- Reuters: RHJ International's biggest shareholder mulls break-up proposal [ID:nL5N0EH0MF] - For previous columns by the author, Reuters customers can click on [ELLIOTT/]
(Editing by Chris Hughes and David Evans)
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