Shareholder concerns over performance fees and potential conflicts of interest have prompted MMC Contrarian to launch a $33 million bid for MMC Asset Management.
The performance fee is payable each year by MMC Contrarian to MMC Asset Management and is calculated at 15 per cent of the outperformance by the MMC Contrarian portfolio compared to the All Ordinaries Accumulation Index.
Under the current agreement between the two groups, underperformance by the fund in prior years would not have to be recovered before such a fee was payable, as the funds watermark was reset on a yearly basis, according to MMC Contrarian, chairman Simon Rowell. By acquiring MMC Asset Management, MMC Contrarian will no longer pay the fee.
Two of the three directors of MMC Contrarian are also directors or substantial shareholders in MMC Asset Management, creating potential conflicts of interest where issues arise, which have different consequences for each company, such as capital management, Rowell said.
The board of MMC Contrarian has appointed Rowell as executive chairman to oversee the merger and plan future strategy in conjunction with the board and executives of the merged group.
“We see this as a clear win-win for all concerned,” Rowell said.
“MMC Contrarian shareholders can look for improved earnings, as a consequence of extra earnings from the fund management activities and lower costs for managing MMC Contrarian’s own portfolio,” he said.
MMC Asset Management shareholders representing 84 per cent of the issued capital have already agreed to the proposal and have signed a sale agreement, which will come into effect following approval of MMC Contrarian shareholders.
Over 90 per cent of MMC Asset Management shareholders need to agree to the proposal prior to it proceeding.
MMC Contrarian is a listed investment company with approximately $255 million of gross assets. MMC Asset Management is a fund manager, which manages the MMC Contrarian portfolio as well as five other funds with a total of $355 million under management, excluding the MMC Contrarian portfolio.
In the financial year ended 30 June 2006 MMC Asset Management achieved revenue of $7.7 million and reported net profit after tax of $2.7 million. MMC Asset Management has approximately $3.5 million of net tangible assets, mostly held as cash on deposit.
At close of the market Friday MMC Contrarian shares had lost 11 cents to $1.10.
