A row has broken out over shareholder rights in the UK after leading advisers criticised Foxtons and The Restaurant Group for shunning retail investors during their recent equity fundraisings.
The two companies are among 42 businesses that have raised £3.6bn in equity since April in response to the coronavirus pandemic to shore up their finances.
But Institutional Shareholder Services and Glass Lewis, influential proxy advisers that issue recommendations on votes at annual meetings, urged shareholders to rebel at the two companies’ AGMs this month. Their recommendations were prompted by the estate agent and the casual dining chain bypassing so-called pre-emption rights that give existing shareholders first refusal on any new equity fundraising.
The clash comes after the Pre-Emption Group, whose members include representatives from the Financial Reporting Council, corporate brokerages and investment houses, overhauled its advice in April to allow companies to raise equity more quickly.
It extended its guidance to allow companies to raise up to 20 per cent of share capital without first giving original shareholders a right of refusal, from 10 per cent.
The change has been controversial because it means big institutional investors have had the chance to take part in the placings, while smaller shareholders have been sidelined.
Thousands of small investors, as well as heavyweight City figures, including Anne Richards, chief executive of Fidelity International, have signed a letter calling on companies to respect the rights of retail shareholders in future equity fundraisings.
Retail investors have suffered a dilution of their shareholdings and have missed out on £447m, based on the issue price compared with current valuations, according to data from PrimaryBid, which links retail shareholders with companies.
Anand Sambasivan, chief executive of PrimaryBid, said: “Retail shareholders are frustrated about getting left out of these deals. Markets are either public or they aren’t.”
ISS called for shareholders to vote against two resolutions authorising Foxtons and Wagamama owner The Restaurant Group to issue equity. It said businesses should have sufficient flexibility to raise capital during these extraordinary times, but added that it was still concerned about the circumstances of the placings.
In the case of Foxtons, which launched plans last month for a £22m share placement after warning it could run out of cash, it said the notice for the annual meeting was released just days after the placement announcement and questioned why the company could not have waited to put its plans to all shareholders.
“As there did not appear to be an immediate liquidity crisis at Foxtons, we contend [the proposals for the placing] could have been put to shareholders at this AGM, in the interests of transparency, if a more equitable capital raising process was not considered to be practicable,” it said.
Glass Lewis recommended shareholders vote against a resolution to issue shares without pre-emptive rights at both companies, arguing they had pushed ahead with a significant issuances without specific shareholder approval.
Separately, Pirc, which advises UK local authority pension funds and other investors, urged shareholders to vote against resolutions to allow share buybacks at Foxtons, The Restaurant Group and Just Eat, linked to their recent capital raising.
Foxtons said it decided to act quickly to secure the company’s financial position. “Ultimately this capital raise will benefit all shareholders by creating a well capitalised business which can survive this crisis and emerge from it with the capability and financial position to thrive,” it said.
The Restaurant Group said it consulted with a large number of shareholders ahead of its placing, adding that its approach minimised “the cost and time to completion, at an important and unprecedented time for the business”.