March 19, 2018 / 1:34 PM / 8 months ago

Activist Sherborne snaps up 5% of Barclays

LONDON, March 19 (IFR) - Sherborne Investors, a specialist fund led by activist investor Edward Bramson, has bought voting rights of 5.2% in Barclays, ramping up the pressure on the British bank to turnaround its fortunes.

Activist investors have become a growing threat for large listed firms as they can use minority stakes to push through major changes in strategy or on the board.

Barclays chief executive Jes Staley had already faced rising calls to improve returns, especially at its investment bank. After years of cost-cutting and disposing of non-core assets investors say returns and dividends need to show a marked pick-up as the restructuring ends.

Sherborne, which describes itself as “a turnaround investment firm”, has been building its Barclays stake since late 2017.

It has had meetings with the bank’s investor relations team but has not met management or board members and has not made specific requests for a seat on the board or change in strategy, people familiar with the matter said.

It said on Monday it has spent £580m building up its Barclays stake. It owns 1.94% in shares, and a further 3.21% via derivatives, notably contracts for difference.

“As with all its shareholders, Barclays will continue to engage with Sherborne, and welcomes them as a shareholder,” Barclays said after the disclosure of the holding.

News of the stake sent Barclays shares up 4% to 217.8p.

“In our opinion, there is clearly substantial opportunity for shareholder value creation from a change in direction,” a research note from KBW said, calling Barclays the perfect activist target.

The Barclays stake has been bought by Sherborne Investors (Guernsey) C Limited, a specialist fund that raised £700m in July.

The fundraising prospectus said it would invest in a public company that it “considers to be undervalued as a result of operational deficiencies” that can be rectified by Sherborne’s active involvement.

“Accordingly, the investment will not be passive,” it said in the prospectus.

It said it had not identified the target at that stage, nor the industry. The prospectus said the fund could not say how long it would hold an investment for, but it was likely to be for at least one year. The average holding period for Sherborne’s four previous UK turnarounds has been 28 months.

UNDERVALUED?

Barclays shares are down 9% in the past year, underperforming a flat European share sector in that time and leaving the stock trading at more than 30% below book value.

Staley took over as CEO in December 2015 and cut costs and sold assets, but profitability has remained depressed by low interest rates, weak trading revenues and tougher capital regulations.

Sherborne, which is based in New York, has previously targeted British financial firms 3i, F&C Asset Management, and Electra with activist campaigns. It forced Electra to fire its management team.

Sherborne’s website says it concentrates its activities as a minority shareholder in publicly quoted companies and “by offering our participation on the board” rather than seeking majority ownership or control of a target.

It targets European and US firms and says it aims to work with management and the board “to implement an aggressive turnaround plan”.

The website adds: “We invest in companies which we believe have the potential to increase their profits substantially, but which have underperformed for an extended period of time.”

Sherborne’s roots date back to 1977, when Bramson co-founded New York-based Hillside Capital. He founded Sherborne in 1986. (Reporting by Steve Slater)

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