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Major shareholder accuses Carillion of misleading investors

Kiltearn Partners was preparing to take legal action against Carillion just days before its collapse, according to letter to House of Commons select committee.

Major shareholder accuses Carillion of misleading investors

A major shareholder in Carillion (CLLN) was preparing to sue the construction group just days before it went into liquidation, with the intention of recovering a proportion of its clients’ crystallised losses.

According to a letter sent from Kiltearn Partners’ chief executive Murdoch Murchison to the House of Commons select Committee, which is leading an inquiry into the collapse of Carillion, the Edinburgh-based investment firm said it was considering civil action against Carillion.

In response to the same inquiry, Standard Life Aberdeen co-chief executives Keith Skeoch and Martin Gilbert also noted that Carillion’s directors showed no intention of changing its strategy despite their concerns over financial management and corporate governance.

‘The board showed no inclination to drive the management to change,’ Skeoch and Gilbert concluded.

Kiltearn, which Murchison founded after leaving investment group Franklin Templeton, believes there are ‘clear grounds’ for an investigation into whether Carillion’s management knew, or should have known, about the need for an £845 million provision due to its receivables on its construction business earlier than July 2017.

At the time of this announcement, Kiltearn owned in excess of 10% of Carillion’s shares on behalf of its clients, who are typically US foundations, endowments and pension plans.

‘The omission of the disclosure from published information, including the 2016 annual report, may have amounted to a dishonest concealment of a material fact by persons discharging managerial responsibilities within Carillion,’ Murchison noted.

On 9 January of this year, just six days before Carillion entered into liquidation, Kiltearn enquired whether Innsworth, a funder of shareholder litigation, was monitoring the situation with a view to bringing a claim against Carillion.

Kiltearn had voted against Carillion’s remuneration report in May of last year because they had concerns about the remuneration of Richard Howson, the chief executive at the time, given the company’s net income had fallen by around 7%. Nevertheless, the investment manager said prior to July 2017 there had been no indication of material financial issues at the company.

Kiltearn began selling down its position in Carillion in August of last year and had exited completely by 4 January 2018, after coming to the conclusion that it was ‘impossible to value’ the business. Murchison said Carillion’s interim chief executive

‘Carillion’s published information, including its historic annual reports, could no longer be considered reliable and consequently no effective assessment of its finances could be made,’ Murchison noted.

Inquiry responses

Kiltearn and other major shareholders in Carillion have responded to letters received from the Work and Pensions Committee and the Business, Energy and Industrial Strategy Committee as part of their investigation into the collapse of the construction group. Alongside Kiltearn, BlackRock, Standard Life Aberdeen, UBS and wealth manager Brewin Dolphin had significant positions.

BlackRock, which is the largest asset manager in the world, held long and short positions in Carillion since March 2017. The majority of these positions were held in long-only passively managed funds, which follow an index.

Amra Balic, head of Europe Middle East Asia BlackRock Investment Stewardship, said the firm's investment stewardship team had not engaged Carillion’s board since the company published its annual results in March 2017.

Prior to this, they claim to have influenced the board not to increase executive director bonuses in February of last year. They also undertook meetings to discuss the role and functioning of Carillion’s board, particularly in relation to the company’s stated strategy.

Time to sell

At the point that Carillion went into receivership, Standard Life Aberdeen had a 0.65% position in the business through a number of passive funds. After July 2017, the fund group did not have any exposure via actively managed funds.

By late 2015, Standard Life Investments – which merged with Aberdeen last year - had begun the process of selling down its exposure. In December 2015, it had held 10.8% of Carillion’s share capital. Standard Life pointed to concerns about the company’s strategy and strength of its balance sheet.

Skeoch and Gilbert noted that Carillion's management was not giving sufficient weight to the probability that trading may deteriorate further.

In a letter to the House of Commons select committee, Brewin Dolphin’s chief executive David Nicol said his wealth management business had reduced its exposure to Carillion during the course of 2017. Selling activity accelerated after the profit warning last July.

MP Frank Field, who is chair of the Work and Pensions Committee, believes the responses from shareholders highlight the ‘disconnect’ between what the management team communicated versus the real health of the business.

‘On one hand, the Carillion directors told us all was sunny until a bolt of Qatari lightning hit them out of the blue. Their stewardship had, they proudly told us, been adjudged “best in class” by their friends at KPMG.

‘On the other hand, investors were fleeing for the hills, and it appears those who looked closest ran fastest. We will be taking evidence from the auditors and the investors - as well as demanding more company papers - to get to the bottom of who knew what and, most importantly, when,’ he concluded.

1 comment so far. Why not have your say?

Not Bothered

Feb 19, 2018 at 23:02

Directors of Carrillion were Not Bothered and did not care.

Yet again a classic example of personal greed and avarice overtaking the primary duty to look after the business for the long term.

All pals together with fingers in the trough.

We do not have sufficient penalties to deal with this wayward and criminally-inclined behaviour;

It will be interesting to see which other large branded companies employ these mis-fits when in fact they should be banned from the corporate world for good.

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