Shareholder revolt threat to Forth Ports

Published on Saturday 23 August 2008 14:01

FORTH Ports' board is expected this week to come under shareholder pressure to break up the company in order to unlock the value of its assets.

Rebel investors are calling for a demerger or for the firm to auction its ports business.

Forth is accused of diverting millions of pounds from its cash-generative ports operation into property development while failing to maximise returns and refusing to divulge how the money is being spent.

The company unveils half-year profits this week which are forecast to be well ahead of last year, and is due to receive planning permission for a 350-acre mixed development in Leith Docks.

But investors are said to have become frustrated by what they perceive as a lack of transparency in the property business and a series of unfulfilled promises.

One shareholder with a substantial holding told Scotland on Sunday that "shareholders have been promised all sorts of things that have never been delivered".

At the investor roadshow following the results, he said there are likely to be calls for a break-up. "It is coming to a head," he said. "Shareholders are losing patience with these guys."

He claimed the company had been "hijacked by a bunch of Scottish businessmen" who were heavily focused on property even though there were few on the board who knew much about it.

"We want to see more information on the money being put into these property developments," he said. Asked if shareholders would like to see a demerger, he said: "It is the most obvious thing they could do. "

While the company is expected to report healthy growth in its seven ports, including five in Scotland, he said an infrastructure fund could extract more value.

"A logical step would be to open the books and run an auction for the ports business. If these guys (the Forth Ports board] think the property business is so great then let them run it. Are they best in class to run a ports business?"

He said every infrastructure fund in the world would "love to own the ports business" and Forth should sell it.

Another shareholder said a demerger may not be the best move, but agreed that the company needed "an injection of new thinking". Others, including F&C Asset Management and Legal & General, declined to comment.

The unrest coincides with a management crisis at Australian investment group Babcock & Brown, which is Forth's biggest investor through an infrastructure fund.

The chairman and chief executive, Jim Babcock and Phil Green, agreed to step down after first-half net profit fell 34%. The firm is expected to sack a quarter of its 1,600 staff.

Debt-laden B&B has slumped in value following a year of turmoil in global credit markets. It acquires assets such as ports and utilities, and bundles them into listed and unlisted funds from which it earns management fees. One of its funds owns 23.5% of Forth and there has been speculation that it would bid for the company.

It recently acquired Angel Trains from Royal Bank of Scotland for 3.6bn and, because of its arm's-length relationship with B&B's operations in Sydney, is believed to be capable of mounting a bid for Forth which is valued just shy of 780m. Forth's shares closed up 75p or 4.52% at 1,735p.