Fight club

The downturn has led the UK’s major property companies down some rough roads in recent years. While some are now returning to the steady path, its still a route fraught with danger, as an aggressive market attempts to take advantage of those still in a weak position.

The recent exchanges between the board at Minerva Plc and one of its largest shareholders, Nathan Kirsh, provide the perfect example. The tension between the two has existed for over a year, yet the late summer months saw events come to a head, as company politics turned nasty in a spectacular and public way.

Friendly fire
The background to the struggle between the property company and the South African billionaire investor goes back to 2008, when KiFin, Kirsh’s investment vehicle first acquired an interest in Minerva. With the downturn in full swing and Minerva’s share prices around the 15p mark, KiFin quickly built up a significant holding in the company. By November 2009, KiFin owned 29.94 percent of shares and following the suit of other investors at the time, launched a takeover bid on the weakened company at 50p a share.

Minerva urged its shareholders to resist the takeover, calling it an opportunistic attempt to take advantage of the downturn in British property and undervaluing the company’s property portfolio. With share prices soon trading above the 50p offered, KiFin was offered just 0.08 percent further interest in the company. With this figure leaving KiFin’s below the 50 percent required to take control of Minerva, the bid was deemed as failed.

Minerva grew stronger after the attempt, with the value of its portfolio being raised by nearly £100m. Yet there has been a consistent rumble of discontent from the KiFin camp over the management at Minerva. Retorting from the failed bid, Kirsh used the events to insinuate Minerva of maintaining non-transparent financial position, with overtones that the companies books might be in a bad way. Notably, Kirsh also has targeted chief executive, Salmaan Hasan and chairman Oliver Whitehead, claiming the pair have failed to publicly disclose to a satisfactory extent the company’s standing and future direction.

Pursuing this line of attack further, in July this year Kirsh outlined a series of resolutions for the company. The resolutions were six proposals designed to increase transparency at the company and change the leadership of Minerva. They outlined the deposal of Hasan and Whitehead from their positions at Minerva based on a timetable set by KiFin. KiFin representatives Philip Lewis and Bradley Fried would then be appointed to the board of directors to handle the company in interim. An election for new chairman and chief executive would then be held, with Lewis and Fried staying on as permanent non-executives to held guide the company through the change.

Kirsh may have designed these proposals to straighten out the company and its direction.

For most spectators though, the measures were a clear attempt for KiFin to gain control of Minerva. As a significant shareholder however, KiFin could insist that these resolutions face a shareholder vote in an Extraordinary General Meeting (EGM). This was scheduled for September.

The demands for the EGM alongside Kirsh’s attacks on Minerva’s supposed lack of direction was undoubtedly had a damaging effect on a company in the tentative stages of recovery. Yet criticism flowed both ways. Kirsh’s ruthless business approach aside, his other investments came under the spotlight, particularly Magal Security Systems, an international company offering services such as security technologies, CCTV and detection services.

One of Magal’s leading clients is the Israeli Government who have used the company’s services and technologies on a variety of projects including the West Bank ‘seam line’ – the highly controversial wall put in place in areas of adjoining Israeli and Palestinian territory. As Kirsh’s interests in Magal became widely publicised, extra security protection was reportedly needed for him and his family to deal with resulting threats. Though not immediately mentioned by Minerva during the dispute, the revelation did potentially damage Kirsh’s standing with shareholders.

Other major investors also announced they would side with the Minerva board leading up to the EGM. Standard Life, which owns almost five percent of shares in Minerva, gave a statement in August outlining its position: “Standard Life Investments does not believe that KiFin’s proposals are in our clients’ best interests”. Standard Life went on to challenge KiFin’s choice of prospective board members, outlining that “we do not believe that the skills and experience offered by these candidates improve upon that offered by the incumbent directors”.

Kirsh went on a charm offensive. Giving a tête-à-tête in The Sunday Telegraph in August, ‘Nate’ as he let himself be called, outlined his role in the dispute as that of a concerned interventionist in the future of the company. The impression was thus less a billionaire tycoon attempting to wrestle power from Minerva, and more an activist investor heroically intervening to secure its future direction. “We don’t want control,” Kirsh reassured regarding KiFin’s intervention into the company, “we just want to have the debate”.

In the end the debate was short. At the EGM on 8 September, it took little more than 30 minutes for KiFin’s to be voted down. Yet the resolutions fell apart within moments when Lewis and Fried withdrew their bids to join the Minerva board. The six resolutions were then rejected by reasonable majorities, leaving Minerva unscathed and Kirsh facing a bruised reputation.

Lessons to be learned
Exactly why shareholders chose to back the Minerva board remains ambiguous. If it were for the strength in the current leadership, the vote of confidence in Hasan and Whitehead would perhaps have been greater than the around 62 percent each garnered, while votes for Kirsh’s suggestions about offering greater transparency weaker (36 percent were in favour of this move). Presumably shareholders felt that Minerva has a greater price on it than to just give its leadership away, and that based on previous examples such as Cadbury, investors weren’t ready to hand over another British company for a foreign investor to potentially take apart.

Regardless of the reasons, the situation was undoubtedly an embarrassment for Kirsh. A KiFin press release was forthcoming immediately after the event in an attempt to try and save face: “Our efforts have pushed the Company to increase its transparency and disclose additional financial information but we believe this is still insufficient to accurately assess the risk profile of the business.”

Some ground was also conceded by the Minerva board as well. Though all six of proposals suggested by KiFin were voted down, the board were not over-zealous in their victory. In a statement following the meeting, Hasan spoke to reporters on where the relationship with Kirsh would now continue: “Hopefully we can now get on with running the business. The dialogue [with KiFin] is something we will seek. We don’t want this to carry on and we don’t want a conflict.”

There are lessons to be learned for both sides from these events. For KiFin and Kirsh, it’s evident that no amount of bravado or talking up a situation will make it transpire. By relying on his reputation and not showing shareholders what he could really offer Minerva, Kirsh lost out.

For Minerva, the lesson has been costly – not only for board members’ reputations but also in terms of the estimated £2.4m administration costs associated with the EGM. Prior to the general meeting, the futures of Whitehead and Hasan had seemed uncertain, despite them eventually holding favour with the majority of shareholders. Minerva’s leadership need to demonstrate greater confidence in their decisions going forward. As KiFin clearly outlined in their statement: “The spotlight is now firmly on the management who need to justify the trust shareholders have put in them”.

Arguably, the biggest lesson is not to do in public what should have been done behind boardroom doors. Running a tight ship should encompass more than just keeping the company in line, it’s about managing and satisfying shareholder’s expectations. Though it won’t be possible to please everyone, a proactive approach can help prevent situations like this occurring – or at least dispel them quickly when they do.