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The small cap firms Woodford could (almost) acquire
by Emma Dunkley on Jan 21, 2013 at 11:13
Almost 10% of Neil Woodford’s £9 billion Invesco Perpetual Income fund is held in stocks where he owns more than 28% of the company, just under the threshold where he would have to make a bid for the firms as stipulated by takeover rules.
He also owns more than 50% of certain small caps and has higher than 20% stakes in 33 companies, positions which amount to 15.5% of the fund.
William Deer, product director in the firm’s UK equities team, said the contribution to performance from the fund’s small and unquoted firms has been ‘meaningful’.
However, these stakes amount to a sizeable portion of the respective companies, and the City Code on Takeovers says if an investor acquires more than 30% of a company, they have to make a bid for it.
Deer says Woodford owns just under 30% in certain smaller companies, meaning the Takeover Code is not relevant in these cases, but 1.68% of the Income fund is invested in companies in which Woodford has more than 30%.
‘If you want to own more, then you can get a “whitewash” agreement with the other shareholders, saying you’re not going to take over the company,’ said Deer.
Stocks in which Woodford owns more than 30% of the company include litigation investor Burford Capital at 39% and E-Therapeutics, in which he has a 47% stake, amounting to nine basis points of the fund.
He also owns 56% of Phytopharm, a medicinal plant farm, and 50% of Raven Russia, a property investment company.
Deer said the team will do ‘everything [it] can not to bid’ for a firm, although there are certain scenarios where Woodford’s stake in a firm will exceed 30% or where this is not necessarily relevant to the Takeover Code.
For example, Deer said if a company in which Woodford has a 30% stake wants to raise equity, the manager would want to stand his corner and own more equity. Companies listed in certain jurisdictions also do not require a ‘whitewash’ agreement where an investor acquires more than 30%.
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