(Please note given the importance of getting the word out and short timeline before the prospective Keybridge meeting, this note is open access, ie not behind the normal paywall. Please feel free to share widely).
Yesterday Keybridge Capital, an entity associated with an Australian ‘activist’, Nicholas Bolton, filed a substantial shareholder notice with a 9.2% diluted shareholding in URF, most all of which is held through the prefs (URFPA). Included in the shareholder filing is a Notice of Meeting, purporting to call a meeting of all members at the Keybridge offices for December 30th – that is, just 17 days from now. Apparently this Notice of Meeting was called on December 9th, thus meeting the statutory minimum according to Australian rules (though I didn’t, and still haven’t received, any direct Notice).
Putting aside this and other questionable aspects of the Notice, which shall be discussed, if said meeting goes ahead, Mr Bolton will be soliciting unitholder and Prefholder votes on the following resolutions:
There is no subterfuge to what is going on here. Mr Bolton’s group is overwhelmingly long the prefs, which are slated to be converted – as has been announced by the Responsible Entity – on January 3, 2023, thus equalizing the capital structure with the equity and providing for lower interest burden and a smoother path towards positive free cash flow for the Fund. The reasoning was explained, at length, by the RE, here – but in any case there is no dispute that the RE has the right to force conversion of the Prefs, as said terms are specifically outlined in the Pref prospectus:
Thus while Mr Bolton and his group portrays this delay, and selection of a new RE, as being the most equitable outcome for all shareholders, in reality it completely favors the Prefholders at the total detriment of common unitholders. This is because the Pref claim, if unconverted, will remain a Par claim – a claim that Mr Bolton would ideally preserve through a near-term if not immediate liquidation or formal wind-up of the Fund. Such a wind-up is not only totally unnecessary, it would act counter to the mid-term value creation now being engendered by the current RE, through the ongoing accretive buyback program; the externalization of management of the fund by credible professionals, who themselves are buying equity in the Fund; and of course via the equalization of the capital structure through the Pref Conversion.
Moreover I believe Mr Bolton may be wilfully misleading unitholders when he claims says the following:
Note that NO replacement RE has yet been proposed, and there is NO guarantee that Mr Bolton will put one forward (or that said RE will be any better than the current one). As it is, however, there is a particular clause in the Corporations Act that allows for a registered scheme to be forcibly wound up – obviously solely to the Prefholders benefit – if a Meeting votes out the current RE without simultaneously voting in a new RE:
Mr Bolton has quite a checkered history as a corporate operator and previously served a 3 year director and management ban, as imposed by ASIC, for his involvement in the failure of 13 corporations (see here). I will not speculate as to his character but I am not about to let him, or his group, call the shots here.
Luckily even if this spurious meeting is deemed legal and occurs we have the run of the numbers. The Bolton group would need simple majorities of the votes on any given resolution; since the diluted sharecount is split basically 50/50 between units and Prefs (I believe 373mm fully diluted shares from the Prefs, and 383 fully diluted units are outstanding), you would need to see very low participation of voting unitholders and very high, and uniform support, from voting Prefholders. As it stands, a number of large Pref and unitholders – such as Samuel Terry Asset Management, the largest look-through shareholder at 11% diluted ownership – has already denounced the plan, thus:
So, I would advise all those involved in this situation following my work – who I believe would most entirely own the common units, the security that would be totally disenfranchised should these resolutions pass – to VOTE AGAINST ALL THREE RESOLUTIONS via submitting proxy forms, preferably to the Responsible Entity (to avoid any counting/trust issues if sent to Keybridge), 48 HOURS BEFORE THE VOTE, that is, by December 28, 3pm Melbourne time.
I intend to vote all my shares against in this manner. Join me in defeating this injurious proposal and allowing the RE to continue closing the valuation gap in the common units, over time.
Disclosure: long URF.AX