Hargreaves Lansdown PLC's (LSE:HL.) board has been accused of backing a takeover offer that is not fair to smaller shareholders.
Investor Lancaster Investment Management, which owns a stake of roughly 0.4% in the investment platform provider, sent an open letter to chair Alison Platt after the board said it "would be willing" to unanimously recommend the latest offer of 1,140p per share from a consortium led by private equity firm CVC Advisers.
The HL board said the £5.4 billion offer was priced at the level it would be willing to back and so it decided to engage with the consortium, allowing due diligence to be carried out.
Lancaster's letter, signed by portfolio manager James Hanbury and investment analyst James Spalton, said it was a "two-tiered" offer that unfairly favours the firm’s co-founders and largest shareholders.
This arises from the offer including what was termed a rollover equity alternative, which gives the opportunity for up to 35% of shares to roll over into a private vehicle, which Lancaster said does not provide an attractive alternative for those who cannot participate, and so "does not does not seem equitable to those shareholders unable to go private".
What's more. the fund manager said this option may introduce a situation where only some, smaller investors, are forced to sell at the price while others are "allowed to make an explicit statement that this price does not represent full value to them, and would not be forced to sell at that price", which Lancaster called a potential conflict of interest.
The largest investors who back the deal and can remain private would also "have an extra incentive to vote in favour of the deal" and therefore if larger investors back the deal it could sway the vote and risk "marginalising the voice of smaller shareholders".
The letter called on the board to offer a separate vote to smaller shareholders to avoid any conflict of interest and also urged the board to reflect again on whether the offer reflects fair value.
"We also urge the board to give itself more time in its current form to assess HL's strategic options and to assess broad shareholder support for different outcomes.
"If management can execute on strategy as the board and we expect, then in our view there is plenty of growth and upside potential for this private equity consortium or others to come back at a very different price and valuation in the future."