(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finally withdrawn.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.
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:
- 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
- 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
- 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)
Keywords: BREAKINGVIEWS RHJ/
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