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Gresham House A.M.

Upcoming EGM of LMS Capital Plc
RNS Number : 6558T
Gresham House Asset Mgmt Ltd
18 November 2019

18 November 2019

Upcoming EGM of LMS Capital Plc

Independent board recommendation to re-appoint Gresham House and continue good governance receives indications of significant support from shareholders and recommendation from respected proxy advisers as best option for shareholders

The independent members of the Board of LMS Capital Plc ("LMS") have unanimously recommended the reappointment of Gresham House Asset Management Limited ("GHAM") as its investment manager, ahead of the Extraordinary General Meeting to be held on the 28th of November, 2019. They believe GHAM's proposal (the "Gresham House Proposal") offers the best option for maximising long-term shareholder value for all LMS shareholders.

Mr Robert Rayne, former CEO of LMS and non-independent Board member, has publicly stated that he opposes the Board's recommendation, instead preferring a self-managed solution in which he would become Chairman (the "Rayne Proposal").

GHAM supports the independent Board's recommendation and has so far received indications of support from LMS shareholders representing over 30% of the shareholder base.

Independent proxy research firm, ISS, has reviewed the competing proposals and has published a recommendation that LMS shareholders support the independent Board by voting for the re-appointment of GHAM.

GHAM believes the Gresham House Proposal offers:

·    The opportunity to create a differentiated, premium rated fund set to target 12 - 15% annual returns, with income in excess of operating costs

·    A team with a strong track record of private equity investing in smaller opportunities with the expertise of the Gresham House Baronsmead teams

·    Access to a wide range of resources including 7 private equity investment professionals, compliance, transaction support, legal, marketing, IT support, private equity advisory networks, and regulatory permissions

·    A proven ability to identify and execute on deals

·    Credible plans to scale up LMS in future, further reducing cost ratios

·    A governance structure which conforms with best practice

·    A solution focused on shareholder value addressed through a clear dividend policy and by offering a continuation vote after five years

·    Reduced operating costs

Since being appointed in 2016, GHAM has delivered substantial benefits to LMS which includes:

·    Significant improvements to governance with investment committee oversight, outsourcing of administration and custody and appointment of a new depositary

·    Reduction of operating costs by over 50%

·    Generation of significant cash from disposals, returning £11m to shareholders in 2017 and generating a cash balance of £28.5m as at 30 Sept 2019

·    Improved investor communications, implementing quarterly NAV statements, factsheets, an improved website and direct investor communications

·    Restructured the shareholder base, placing out a large activist shareholder

·    Generated substantial NAV benefit to LMS through its holding of Gresham House shares

GHAM believes that the Rayne Proposal poses significant risks to shareholder value:

·    LMS underperformed the FTSE ALL Share by 95%[1] over 10 years under previous self-management led by Mr Rayne

·    The share price fell 10% following the revelation that the Rayne parties intend to vote against the Board, indicating the market's immediate concerns

·    The self-managed Rayne Proposal is unlikely to offer the necessary breadth of resources cost-effectively; GHAM estimates that costs would need to increase by over £1 million per annum to provide the resources identified by Mr Rayne

·    Precedent suggests that a small, family-controlled vehicle will struggle to scale and is likely to trade at an increased discount to Net Asset Value

·    Trading liquidity is likely to fall, with shareholders being left with no visibility on how they might realise the underlying value of their investment in future

·    The proposed return of capital will further reduce scale and increase cost ratios, which are already high

GHAM believes that the Rayne Proposal also represents a significant step backwards for governance, as Mr Rayne is seemingly conflicted and is seeking to take control of LMS without offering independent shareholders an alternative.

·    The Board will be responsible for both taking investment decisions and holding themselves to account

·    The Rayne Proposals run directly contrary to the undertakings made by the Rayne concert party in the Circulars to shareholders in both 2016 and 2017 not to seek to change the Board or the company's business

·    Under previous self-managed arrangements, individuals were well rewarded, and Mr Rayne stands to benefit personally from the self-managed proposals

·    Mr Rayne's proposed reliance on third parties for deal origination and execution is likely to entail substantial hidden costs for shareholders.

GHAM therefore urges all shareholders to review the circular posted by the independent members of the Board and to vote for the Board's recommendation.

A copy of the circular, proxy form and a presentation setting out more detail GHAM's views on the options shareholders face can be found at https://greshamhouse.com/strategic-equity/private-equity/lms-capital-plc/#shareholder-information.

Note that if shareholders use the proxy form posted on the website to vote, it must be signed by the registered owner of the shares in the case of nominee holdings.

For more information contact:


Alexander Clelland

Anushka Mathew


+44 (0)20 3701 7660


[1] Source: Bloomberg; LMS Total Return Index compared to the FTSE All Share Total Return Index weekly between June 2006 and August 2016

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.

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