Thursday, 5 March 2009

Gladstone/Constellation update

I know that this blog has a lot of readers interested in the ongoing battle between Gladstone and its spurned bidder, Constellation Inc. There has been a new letter to shareholders from Gladstone, urging shareholders to reject Constellation’s request for a place on the Board.

In the letter, the Gladstone Board is complaining about Constellation’s actions at last week’s AGM, removing the Finance Director and constraining Gladstone’s ability to either buy more shares in the market, or sell existing shares held in treasury. Something that I fear the Board may have to get used to if it cannot resolve its current dispute with Constellation.

Gladstone has also taken the unusual step of obtaining the names and addresses of shareholders who hold their shares through nominee accounts, and using Grant Thornton to write to them with a voting form for the EGM vote, urging them to vote against the resolution. This, combined with Constellation’s success at the AGM, suggests that the EGM vote on 16 March could be close....

Unfortunately, this disagreement does little to help the Gladstone business – it is incurring extra costs to fight off Constellation, and the fight is undoubtedly taking up significant amounts of management time – time that should be used to manage and drive the business forward.

I remember that when Radius was listed we had a dissident major shareholder who, similar to Constellation, was a constant thorn in the side of the Board, requesting EGMs and involving senior management in vast amounts of unnecessary work. No-one won out of the disputes, and the company suffered through the diversion of senior management time – and I suspect that may well be the outcome of this protracted battle between Gladstone and Constellation.

In practice, Constellation owns just under 30% of Gladstone, and one could argue that they should be allowed a seat on the Gladstone Board on that basis alone. One thing I learnt from the Radius experience was the need to have your major shareholders on your side – if they’re not, the company will be unable to function properly until either they are, or they are no longer shareholders.

But I suspect that Constellation is not about to give up its shareholding – even if they fail to get a Board position (unless there is a new bidder offering a significant premium to the 25p Constellation paid for its shares). Whilst if they get a Board position, I’m sure they would shake up the existing management – yes, they might use their position to try to acquire the company on the cheap – but without Constellation on the Board, I fear that the current Board may not deliver on their promise to grow the business over the next year any rate, and if so, Constellation may still get Gladstone “on the cheap” early next year.

No doubt Constellation will respond to Gladstone’s latest letter – it will be interesting to see what new attacks they make on the existing Gladstone Board.......

No comments: