Circular capital

If a company has just raised capital from investors by placing, it strikes us that the board must have thought that the company needed capital and the best route to raising it was via investors. We also believe that if the company has just raised capital from shareholders this means that the board cannot think that this is the time to for it to be distributing capital to shareholders.
That might sound rather obvious, but if you look at recent company behaviour, and authorities sought from shareholders at AGMs, you get a rather mixed message.
For example, on Friday 17 April Foxtons announced it had raised £22m via a share placing. The next working day, Monday 20 April, it issued its notice of AGM that includes a resolution seeking authority to undertake a buyback. Unless something dramatically changes over the weekend, this looks rather odd.
Foxtons is not alone. Look at The Restaurant Group. It undertook a placing on 9 April. The next week on 15 April it issued its AGM notice including a resolution seeking authority to undertake a buyback.
Or look at The Gym Group. It undertook a placing on 17 April. Two weeks later it issued its AGM notice again seeking authority to undertake buybacks. And there are several more out there.
To be clear, we don’t think any of these companies are going to be buying back shares any time soon. It’s more likely that they simply want to have the authority in place in case they want to utilise it later on. But it does say something about the unthinking way that AGM agendas are constructed. We’ll be advising our clients to vote against buyback authorities in such cases.
PS. Looking in the other direction, we have seen some companies shift rapidly from distributing capital to shareholders to tapping up investors for cash. For example, DFS was buying back its own shares up to mid February. By mid April is had carried out a placing.
However the sharpest U-turn we’ve seen was at Auto Trader. It was still buying back shares up to 16 March. Twelve working days later on 1 April it carried out a placing.

Leave a Reply

Your e-mail address will not be published. Required fields are marked *