New shareholders could save Countrywide deal

Investors who bought shares in Countrywide in the two days before the cancelled extraordinary general meeting (EGM) could hold the key to the outcome of the deal, according to former managing director Harry Hill. The vote, originally planned for Monday, has been rescheduled for next Friday, January 26.

Countrywide’s board, on the advice of recommended bidder 3i, cancelled the EGM after indications that the £972m offer might not get the necessary 75% approval for the scheme of arrangement from shareholders. Proxy votes had been received from representatives of only 53.35% of the total share capital, 38.3% of this segment opposed the deal.

Hill, who is leading the buyout of the estate agent group backed by 3i, said: “24 million shares changed hands last Thursday and Friday. None of these buyers would have been able to register in time for the EGM vote.”

This tranche amounts to 14% of the total number of shares in issue. Trading in the shares, described as “frenetic” by one advisor last week, has been quieter since the meeting was adjourned.

Investors speaking for 16.8% of the shares have already said they would oppose the deal. US-based hedge fund Artisan Partners, which lifted its stake to 8.5% on Wednesday, is one of these. Another hedge fund, Boussard & Gavaudan with a 5.1% holding, has also said it would vote against the buyout as it “substantially undervalue[s] Countrywide”.

Boussard & Gavaudan also objected to the fact the offer involved 0.165 of a share in Rightmove, the property website in which Countrywide is a major shareholder, as well as 490p in cash for each Countrywide share. The fund said this was “an inappropriate way for Countrywide to dispose of its shareholding in Rightmove”.

Based on Rightmove’s closing price on Monday of 476.5p, this proposal valued Countrywide’s shares at 568.7p. That compares with Countrywide’s closing price of 531p.

A spokesman for Boussard & Gavaudan said its position had not changed since the postponement of the EGM. Similarly Scottish investor Standard Life, which intended to vote its 3.2% holding against the buyout proposals, remained unmoved according to a person close to the situation.

However, several other hedge funds with significant stakes in Countrywide have yet to declare their intentions. Polygon, which last August opposed the £364m buyout of Telent, has already reduced its interest from 8.8% to 5.4% but has not revealed its plans. Neither have JANA Partners, Seneca Capital, ReachCapital or Brahman, which all have holdings over 1%.

3i’s advisers have contacted the hedge funds. Hill himself said he had not spoken to them.

Some have suggested that with such a flurry of trading prior to the EGM, that the rules surrounding the disclosure of stakes worth more than 1% in a takeover target should be changed. At present rule 8.3 of the Takeover Code says anyone who takes more than 1% in such a company must say so by 3:30pm the day after the trade.

David Watkins, secretary of the Takeover Panel, said: “Under Rule 8.3, such parties used to have declare their stakes by twelve noon, but participants in the market thought this was too onerous. I think it unlikely that we would be able to get people to file earlier.”

3i has reiterated that its offer for Countrywide was final and “the terms cannot be revised or increased” as no competing offer had been received. The bidder added that the deal offered shareholders “much greater certainty than they would have if the scheme fails”.

3i noted that “uncertainty over interest rates and the housing market generally has increased” since Countrywide first said it had been approached in mid September.