There's rebellion in the air at Trencor
Minority shareholders are looking to remove its directors and management
Frustrated minority shareholders in Trencor, whose 48% stake in Textainer, once the largest lessor of containers in the world, has been a long-term underperformer, have resorted to a so-far unused section of the Companies Act to remove mechanisms that protect the directors and management of Textainer.
As Trencor’s major asset, Textainer’s underperformance has seen the Trencor share price slump from a high of R84 in mid-2014 to its close of R33.90 on Friday.
The Trencor shareholders want to remove Textainer bylaws, which protect the directors and executives from legal action by shareholders and make it difficult for a third party to acquire control of the company without the consent of the board.They have used section 65 of the Companies Act to lodge resolutions for the upcoming Trencor annual general meeting.
The section, which allows two shareholders to propose resolutions at a shareholders’ meeting, does not require a minimum shareholding. It has been described by corporate lawyer Carl Stein as a “powerful new right for minority shareholders”. This is the first time it is being used by South African minority shareholders who have, with a few notable exceptions, traditionally opted to avoid time-consuming and costly action against an entrenched board.
Chris Logan, who is CEO of Opportune Investments and has owned a few hundred thousand Trencor shares for decades, is spear-heading the assault on the bylaws, which he believes shelters Textainer’s management and the board from the consequences of long-term poor performance.
The share price of Textainer, which was listed on the New York Stock Exchange in 2007, has been on a downward trajectory since it peaked at $42 in February 2013.
It is currently trading at about $15, which is close to the level at which it was listed in 2007. No dividend has been paid since 2016. At $15 it is trading well below its net asset value of $20 compared with current industry leader Triton, which is trading at a premium based on strong profit growth.In a letter addressed to the Trencor board Logan said it was clear the “extra-ordinary” provisions “are a pivotal cause of the deeply entrenched complacency and structural underperformance” of Textainer over the past five years.
A second minority shareholder, Elizabeth Corbett, is backing Logan’s move. The shareholders have lodged two resolutions with Trencor for consideration by shareholders at the upcoming annual general meeting.
The resolutions call on Trencor to use its “substantial influence” to remove the “anti-takeover” bylaws. They also call for the two Trencor directors on the Textainer board, Hennie van der Merwe and David Nurek, to support this move. If the resolutions are successful and the bylaws removed, the board might not only face legal action for Textainer’s poor performance but the company would be more vulnerable to a takeover.
Even if the resolutions are not passed by the necessary 50% of shareholders the unprecedented action will have drawn attention to an embarrassing board issue.
On Thursday Van der Merwe acknowledged the resolutions had been received. “The board will respond in an appropriate manner and expeditiously,” Van der Merwe told Business Day.
Coronation Fund Managers, which holds 12% of Trencor, said it did not have a comment on the shareholder action or the long-term underperformance of the company. Investec Asset Management, which also holds Trencor shares, told Business Day it did not speak on stock-specific issues.