Davenham is salvageable, says activist investor

THE MAN looking to take charge of beleaguered Manchester lender Davenham has argued that the loss of all value in the company’s shares seems inevitable unless shareholders are prepared to remove existing directors and back his bid to salvage parts of it.

David Anthony, a former CEO of Hitachi Capital, which was once one of Davenham’s major commercial lenders, has tabled the motions for the removal of Davenham’s current chairman James Kerr-Muir and Group managing director Paul Burke. He is asking shareholders to appoint him as chairman and former Secure Trust Bank CEO Gary Jennison as his new CEO.

“I believe there is potential for a return to shareholders,” he told TheBusinessDesk.com. “The business is salvageable – or at least part of it is.”

Davenham has endured a disastrous couple of years marked by huge write-downs on its property-related loan book, which was closed to new business in October 2008. The company undertook a strategic review last year, which reported in June last year that there was likely to be no value left in its shares and recommended that its remaining loan book is wound down.

The company then began a process of winding down all of its remaining businesses. It also attempted to delist from AIM – a move that was resisted by its shareholders.

In November, Davenham reported that its outstanding loan book had been reduced to £80m but that it still owed a banking syndicate led by Royal Bank of Scotland £111m.

Anthony insists that “there is a deal to be done” either with its current banking syndicate or through a merger with another financial institution.

He is proposing a restructuring of the business which would allow for new equity investment to be brought in in a bid to retain both the asset and trade finance arms of the business.

He built a 15% stake in Davenham in September last year and approached directors to discuss a turnaround plan.

He said that despite signing non-disclosure agreements, he has been unable to access key information and therefore had no option but to requisition next week’s meeting to remove the current board.

“I’m unable to gain any evidence that there is a reorganisation plan in place,” he said.

In a circular sent to shareholders ahead of the meeting, the current Davenham board argued that it had already been through a strategic review process which flushed out 60 interested parties, but none of these were willing to offer anything like the sum which would be needed to repay its banking syndicate.

Moreover, the board argues that following a meeting with Mr Anthony in November, the banking syndicate made it clear that it “did not wish to see any changes to the board”.

The board said that it believes that if Anthony’s resolution to remove them is passed, the banking syndicate will recall its loans and the company will be placed into receivership.

It said that if Anthony’s motions were passed, they would “deprive shareholders of any remaining chance of a solvent reconstruction of the group that might see some element of value for the company’s shareholders”.

The company also argues that it has the support of the company’s largest shareholder, Kingswood Property Finance Limited Partnership, which bought ACP Capital’s 29.13% stake last month.

However, Anthony argues that its banking syndicate should be willing to negotiate with potential new investors.

“Banks are pragmatic – what they want is the best possible outcome they can get.”

He said there is “a big shortage of supply” in both asset and trade finance lending to SMEs, and there is a genuine opportunity to build market share using Davenham’s remaining talent and infrastructure, although this will weaken the longer that the current state of affairs remains.

He said that Davenham “used to be an excellent business” when it was being run by founder Colin Davenport.

“The tragedy is what has happened since the flotation,” he said.

The general meeting is set to take place next Tuesday, January 11.