THE Association of British Insurers gave their strongest warning to investors yesterday over a restructuring plan by Berkeley Group, the luxury housebuilder, which could net its executive directors bonuses of more than £100 million.
The ABI, which represents most of Britain’s multibillion-pound insurance industry, placed a so-called “red alert” on the plan — its strongest expression of disapproval.
Peter Montagnon, head of investment affairs at the ABI, said the plans — which will see £1.45 billion returned to investors, the equivalent of £12 per share over the next six years, in return for a 15 per cent stake in the business — have led to “serious concerns”.
Berkeley formally released details of its plans yesterday, which will lead it to scale back its traditional housebuilding operations in favour of large urban regeneration schemes.
As predicted in The Times last week, the company refused to bow to pressure from some investors that wanted a cap, or taper, imposed on the incentive scheme to limit the potential payout to executives.
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Berkeley also opted to link its restructuring plan to its executive reward scheme, ensuring that investors will have to vote for everything.
“It is a matter of some regret that the company did not consider any alternatives. The quality of the dialogue with shareholders has been poor throughout, which is a real pity,” Mr Montagnon said.
The ABI felt the award to directors of 15 per cent of the company was “rather a lot”. While it was happy to back rewards in return for achieving stretching targets, he questioned whether Berkeley was just delivering value already lurking within the business.
The ABI is also worried that Berkeley directors, who together own 2 per cent of the shares in the company, will be able to vote in favour of their own remuneration package.
One other top ten shareholder, who asked not to be named, backed the ABI’s view, arguing that the plan might set an unhealthy precedent. But at least four of the company’s other top ten shareholders have said they back the plans, and Berkeley is confident it has the backing of most investors.
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Scottish Widows, which owns just under 2 per cent of Berkeley and is a member of the ABI, said it continued to back the proposals, which, it believes, deliver great value for investors. Saad Investments, Berkeley’s biggest shareholder, which owns over 12 per cent of the group, said last week that it would unequivocally back the proposals. Saad has been a long-term investor in Berkeley and has carried out a number of joint ventures with the company. A spokeman for Berkeley said he was surprised that the ABI had formed its view only three hours after the release of the plan’s formal details. Investors are expected to receive the first £5 per share on November 26, then £2 in 2006, £2 in 2008 and £3 in 2010. They can vote on the plans at an extraordinary general meeting on September 17. The restructuring plan needs a 75 per cent acceptance, the incentive scheme more than 50 per cent.
Berkeley’s shares rose 33p to £12.16.