BOSTON, March 4, 2016 /PRNewswire/ -- Highfields Capital Management ("Highfields"), a value-oriented investment management firm that currently holds more than 9% of the outstanding shares of Delta Lloyd N.V. ("Delta Lloyd") (AMS: DL), today filed a Petition with the Enterprise Chamber under the Dutch Civil Code (the "Petition") seeking to protect the interests of all shareholders of Delta Lloyd.
In its filing, Highfields seeks two forms of relief related to the Company's effort to drive shareholders to accept an unnecessary and massively dilutive Rights Offering:
First, Highfields asks the Enterprise Chamber to require Delta Lloyd to honor its own announced deadline for voting of 9 March, by taking steps necessary to allow shareholders to vote up to such deadline, even if their shares are held by various nominees. Without such steps, many shareholders, relying on the announced 9 March deadline, will be denied an opportunity to vote.
Second, Highfields is asking the Enterprise Chamber to block the Company from holding the vote on the Rights Offering at the Extraordinary General Meeting on the grounds that the management has provided patently inconsistent and incomplete information to shareholders in an attempt to scare shareholders into voting with management. Their effort entails misdirection, relying on the complex and technical nature of Solvency II and related calculations to confuse and frighten shareholders.
However, their arguments collapse under scrutiny and facts. Prime examples are found as recently as management's 3 March response to Highfields Presentation of 1 March:
- LAC-DT. In November, management stated confidence in recovery of 72% (€646 million), a rate comparable to its peers, due to its "detailed recoverability analysis." On 24 February, management revised its recoverability estimate down to 58% (€524 million), but refused to quantify the impact of shareholder rejection of the Rights Offering. Management now claims, just one week later, in response to Highfields' Presentation, that shareholders should expect recoverability of a paltry 10% (€87 million) if they reject the Rights Offering. Which management view are shareholders to believe and is this merely a continuation of management's pattern of attempting to scare shareholders?
- Longevity Swaps.Highfields believes that at least half of the (14%) capital loss occasioned by DNB comments in late December can be recaptured by restructuring the swaps to match the structure used by Delta Lloyd's peers. Management's response is that "there is no basis" for any such recapture. Have they even tried? Why can they not do what their peers can do?
- Arbitrary Assumptions to Fit Management's Doomsday Story. Highfields' Presentation points out that on 24 February management accepted Highfields' excess spread criticism: investment income would be higher than management's impossibly low guidance. To offset this improvement, management has chosen to arbitrarily adopt new and more negative assumptions elsewhere. For example, management's prior guidance to the investment community set Delta Lloyd's effective tax rate at 10% due to deferred tax assets, but in its 24 February calculations management abandoned its prior guidance and nearly tripled the rate to 28%. Why? No explanation can be found in management's 3 March Response, or anywhere else.
- Selling Equity to Pay Dividends. Highfields believes that selling equity to pay back a dividend to shareholders is circular. Management says that they "disagree" with this statement. Since the truth of this statement is patently obvious, we can only imagine that management is pointing out that it is not a perfectly circular exercise—much of the proceeds will be lost to shareholders through management's inefficient capital allocation.
- Organic Capital Generation. Management now says that Highfields is using "overly and inappropriately optimistic projections." In fact, Highfields' Presentation used the mid-point of management's own guidance.
Highfields' Petition to the Dutch Enterprise Chamber is aimed at protecting Delta Lloyd shareholders from making a critical decision based upon the shifting and self-serving arguments put forth by management—a management team that has purchased no Delta Lloyd shares, and so has no personal capital at risk and only seeks to make their own jobs easier by overcapitalizing the Company at the shareholders' expense.
About Highfields Capital
Highfields Capital Management is a $12 billion value-oriented investment management firm which manages private investment funds for endowments, charitable and philanthropic foundations, pension funds and other institutional and private investors. The Highfields funds invest worldwide in public and private companies across a wide variety of industries and security types. The firm was founded in 1998 and is based in Boston, MA.
SOURCE Highfields Capital Management