![Peter Hall is expected to sell his remaining 24 per cent in Hunter Hall International to Washington H. Soul Pattinson.](/content/dam/images/g/t/x/f/2/y/image.related.afrArticleLead.620x350.gu2iy1.png/1485898245687.jpg)
![Tony Boyd](/web/20170201160101im_/http://www.afr.com/content/dam/images/1/3/s/y/3/g/image.imgtype.afrAuthorAvatar.120x120.png/1425275986441.png)
There is a new twist in the fight over the key fund managed by Hunter Hall International with Washington H Soul Pattinson buying up shares in Hunter Hall Global Value (HHV) to block rival fund manager Geoff Wilson.
Soul Patts has been in the market soaking up stock in HHV in order to stop Wilson's bid to shrink the size of the company through a compulsory share buyback.
Wilson has threatened to call an extraordinary general meeting to sack the board of HHV and then introduce a buyback that would allow shareholders to exit at net tangible asset backing.
This battle has already stretched long-standing relationships. It has pitted HHV chairman Paul Jenson against Wilson, who appointed him to the HHV board.
Wilson has also appointed Jenson to the board of other funds in the Wilson stable of listed investment companies. But the real fight is between Soul Patts and Wilson. Soul Patts wants to preserve the value of HHV as it makes up a significant proportion of the $980 million in funds under management handled by Hunter Hall International.
Hunter Hall International is the subject of a below-market takeover offer from Soul Patts that includes an extraordinary deal with the company's founder Peter Hall.
He has sold 19.9 per cent and is expected to sell his remaining stake to Soul Patts through acceptance of its takeover offer after the release of a Target Statement from Hunter Hall International later this week.
There is a second takeover offer for Hunter Hall International from Pinnacle at $1.50 a share. It holds equity interests in a number of specialist investment managers.
Soul Patts hasn't yet breached the 5 per cent disclosure threshold at HHV but that is likely to happen soon as it has been buying about 90 per cent of all shares traded daily.
Soul Patts, using Shaw Stockbroking, is believed to have about nine million shares. It would need to buy about three million more shares before reaching 5 per cent. It is trying to build a blocking stake to prevent Wilson from going ahead with his proposal to sack the board and force a buyback at NTA.
Wilson, however, is believed to be increasingly confident that he will prevail. Many of the shareholders in HHV were introduced to the company by a large financial dealer group. These shareholders are believed to control about 10 per cent of the issued capital.
Wilson owns about 11 or 12 per cent of HHV. He was selling shares late last year and started buying back into the company in January. He could lodge his demand for an EGM as soon as Wednesday.
There was extremely heavy turnover in HHV shares in January. About 20 million shares have been traded. The buying by Soul Patts and Wilson does not account for all of the turnover in HHV. Perhaps there has been another buyer soaking up stock in addition to Soul Patts and Wilson.
The fight over HHV is emerging as one of the most interesting stoushes to have occurred in the fast-growing listed investment company market for many years.
Normally the pressure on boards to conduct a buyback comes when the discount to NTA is 10 per cent or more. That is usually described as an arbitrage play.
But in this case shares in HHV have been trading at about a 2 to 3 per cent discount to the NTA.
That means that shareholders who have wanted to get out have been able to do so at a price that is very close to NTA.
Soul Patts would most likely argue that the liquidation of assets to pay for a buyback would disadvantage any shareholders who stayed on the company's register.
HHV has several concentrated positions. Selling those shares, such as in Sirtex Medical, would incur an illiquidity discount.
Add to that the costs of selling shares and the taxation incurred and the final amount raised could be less than the NTA, depending on how many people wanted to get out through a buyback.
Adding further grist to the mill, another listed investment company called Henry Morgan has bought a 5 per cent stake in Hunter Hall International.
Wilson says a share buyback process would not lead to any costs for shareholders who choose to remain with HHV. He says a competent fund manager should be able to liquidate an investment portfolio quickly.
Wilson's liquidity analysis of HHV's top 10 holdings shows that 10 days' liquidity could turn 89.2 per cent of those holdings into cash.