Activist investor Milkwood Capital has been condemned by an investment trust it is targeting for an attempt to “thwart” its pursuit to shutter.
Downing Strategic Micro-Cap, which invests in small UK companies, saw investors vote to wind down the trust in February 2024, and has been slowly liquidating its holdings to give cash back to its investors.
However, it has a problem. Activist investor Milkwood Capital bought out a 28 per cent stake in the trust following the vote and has instead been “seeking to secure the future management of the company’s portfolio for itself” rather than making an entire bid for the company, the trust’s board said.
In April, the Downing trust attempted to pursue a cash redemption to shareholders, but only 56.7 per cent of shareholders voted in favour of the deal, less than the 75 per cent required.
The main opponent to the managed wind-down was Milkwood, as less than 0.28 per cent of the shares that voted against the deal did not belong to the activist investor.
Instead, the trust circumvented the attempted blockage to stop the wind-down by issuing two special dividends worth at least £17.6m, or over half the value of the trust.
The trust’s assets have drastically dwindled as a result, falling to just £5.3m, down from almost £30m when the vote took place earlier this year.
With the latest dividend set to be paid on 18 July, around 90 per cent of the trust’s assets will be gone, “after which there will be just £4.6m of assets – meaning there is little left for Milkwood to fight for,” said Numis analyst Ewan Lovett-Turner.
However, Milkwood has continued to fight back. Last month, the activist investor requested a general meeting to remove some of the trust’s directors and replace them with candidates selected by Milkwood, as well as pausing any payouts to investors.
Today, the Downing trust’s board stated it unanimously recommends shareholders vote against the amendments proposed by Milkwood, with chair Hugh Aldous arguing that “so far, all Milkwood has done is to try and thwart the process that shareholders have voted for”.
“Calling for a general meeting in order to attempt to gain control of the board, so soon after losing their previous attempt to frustrate shareholders wishes, has only proven to be a further distraction for the board and has imposed additional unnecessary costs and hassle on shareholders,” he added.
“As we have said to Milkwood repeatedly, if they want to take control of the dompany and run it in their own specific interests, then they should table a realistic offer that is fair to all shareholders and it will receive due consideration.”
The trust’s general meeting will take place on 5 August.