Keswick control challenged

The Keswick family's 125-year control of the Jardine empire is under threat after one of its largest independent shareholders proposed that the group's defen sive cross shareholding structure be abolished, a move that could leave it vulnerable to takeover. United States fund management firm Brandes Investment Partners, which holds 8 per cent of Jardine Matheson Holdings (JMH) and 2 per cent of Jardine Strategic Holdings (JSH) is proposing six resolutions to be put to shareholders at JMH's annual meeting on June 1. The resolutions call for JSH directors who are also JMH directors to be barred from voting JSH's 38 per cent holding in JMH on matters involving JMH. They also seek the formal unwinding of the cross-shareholding between the two firms. JMH directors have advised shareholders to reject the members resolutions citing the threat of a takeover which it said may not be in shareholders best interests. California-based Brandes has US$42 billion in assets including a 14 per cent stake in Swire Pacific 'A' shares, is an avowed 'value' investor and according to a brief release made yesterday is leading a group of Jardines shareholders. The first challenge to the Keswick's control of the group since its defensive legal fortress was erected in the late 1980's could trigger a multi-jurisdiction legal battle testing principles of modern corporate governance. In a letter to shareholders yesterday, JMH chairman Henry Keswick said: 'We believe that the motivation behind these resolutions is based on a misconception of the business environment in which we operate. 'The stability which the group structure creates enables its business to compete effectively in their chosen marketplaces.' The move comes three months after Jardine Matheson managing director Alasdair Morrison abruptly quit the firm after a reported confrontation with Mr Keswick over his proposal to scrap the cross-shareholding structure. Brandes' resolutions propose that the structure be unwound possibly by JMH buying all outstanding shares in JSH, offering shareholders either a cash option or JMH shares. In reply, the Jardine board said JMH would not have the financial resources to undertake such a transaction. It added: 'It would be wrong not to take into account all relevant factors including the ability of a potential offeror to acquire control of the company on terms which would not fully reflect the value of the company's underlying assets.' Brandes' justifies its resolutions proposing to bar common directors from voting JSH shares over JMH affairs by saying there is an inherent conflict of interest. Of 10 JSH directors, only three directors do not sit on the JMH board. Recommending that shareholders reject the proposal the JMH board argued that common directors have the right to vote JSH shares on JMH matters because of its substantial stake in the company. It also said that conflict issues were provided for in Bermuda Company Law and London Stock Exchange rules. Common directors of JMH and JSH have long been considered vulnerable to potential shareholder litigation in the US should they vote against proposals judged in the interest of minority shareholders. Neil McNamara, Jardines Group company secretary yesterday denied directors faced inherent conflicts of interest. 'Directors are cognizant of their duty under the law to act in the interests of that company,' he said. He said Brandes had contacted Jardines with its resolutions 10 days ago, but had given no indication of its future strategy should JSH's board vote its stake in JMH against the proposals. He confirmed Brandes was one of JMH's 'largest shareholders' and said company officials had met with officials from the firm in the course of normal investor relations during the last three years. 'Management does recognise that performance over the last few years has not been as good as it could have been. That said, tremendous strides have been made in restructuring the group, with the reorganisation of Jardine Pacific, the development plans of Hongkong Land, the Flemings sale and Cycle & Carriage's expansion into Indonesia. 'It is a shame that they [Brandes] could not have waited to see the results of management's restructuring.' The Keswick family controls the group with an estimated 5 per cent shareholding in the company. A similar 5 per cent is held by the Weatherall family and the John Smith Trust which is retained as a remuneration vehicle for senior management. Together with the JSH stake in JMH, the structure allows Keswick-friendly parties to vote down any hostile proposal. Such cross-holdings are increasingly outdated and considered inimical to shareholder interests. In 1984 the group moved its domicile to Bermuda. Two years later a group of local tycoons made a bid for Jardine Matheson after a series of poor early 1980's investments. The cross shareholding was erected shortly afterwards and in 1988 the Jardine Matheson Holdings Consolidation became Bermuda law. This act makes it prohibitively difficult for a hostile bidder to take over the group. Jardines has been considered vulnerable to takeover threats in post handover Hong Kong due to its colonial antecedents and opium trading past. However the action by a US institutional investor may be more difficult to dismiss due to its objective focus on shareholder value.