RHG announcements have been flying thick and fast this afternoon. Open any of them, though, and you will see a letter to the RHG board from institutional investors represented by Karl Siegling and Geoff Wilson.
Siegling and Wilson represent 8.4% of RHG’s outstanding shares and have told the board they intend to requisition a meeting with the intention of removing two existing directors, John McGuigan and Greg Jones, and replacing them with three new directors, Malcolm McComas, Gabriel Radzyminski and Paul Jensen.
If successful, the new directors have committed to maintaining RHG as a listed entity and distributing surplus cash as dividends (franked wherever possible). That would be very good news for shareholders.
There is, however, a sting in the tail for retail investors (surprise, surprise). The proposed new directors have said they will seek to implement a buyback on the same terms as the current offer, $0.88 per share including $0.70 of fully franked dividends.
This suits the institutional investors nicely. Every share the company buys back at $0.88 increases the value for those that don’t take the offer. Of course, investors will have the choice of not participating. And, given an alternative of a listed company committed to returning excess cash as dividends, not participating is exactly what I will be doing. But a buyback at a fair price would give me a lot more confidence that the new directors are in it for the benefit of all shareholders. I’ve made that very clear to them over the past week or so.
Our survey of Intelligent Investor members indicates that, between us, members own between 12% and 14% of RHG’s shares. Obviously everyone is free to vote how they wish but, as a group, we are the largest shareholders outside the Kinghorn family.
We have a big role to play here and, while the latest developments are unequivocally positive, now is not the time to be letting our defences down.
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Forager Funds is a boutique fund manager specialising in a value investing approach. We offer an ASX listed Australian Shares Fund as well as an International Shares Fund both aimed at delivering returns for long term investors.