Babcock faces off adversarial investors

Babcock Capital Should Consider Winding Up, Says Pendvest

By Stuart Kelly

Nov. 29 (Bloomberg) -- Babcock & Brown Capital Ltd., a fund managed by Australia's second-largest investment bank, has performed so poorly on the stock exchange it should consider winding up, a U.K hedge fund said.

Pendvest LLP, the fund's second-biggest investor with a 5.2 percent stake, demanded a special meeting to vote on returning half the company to shareholders and consider options including winding up completely, according to a letter sent to Babcock yesterday, a copy of which was obtained by Bloomberg News. Pendvest said Babcock's assets are worth more than its share price.

``Babcock & Brown Capital is an inefficient vehicle where the underlying value of the investments may never be truly reflected in the stock price,'' London-based Pendvest said in the letter. Babcock Capital declined to comment on the allegations and agreed to hold a meeting on the matter.

Babcock capital's shares jumped 7.2 percent to A$4.77 on the Australian Stock Exchange at 10:56 a.m. in Sydney. The Sydney- based fund had advanced 0.5 percent this year as of yesterday's close, lagging behind the 12 percent gain in the S&P/ASX 200 Index. The fund posted a full-year net loss of A$132 million ($117 million) in August after earlier forecasting a profit of as much as A$30 million.

Babcock & Brown Capital said it will call a meeting within 21 days to consider the proposals, according to a statement to the stock exchange. Erica Borgelt, a spokeswoman for Babcock & Brown Capital, declined to comment further on the matter.

Pendvest wants Babcock to return A$425 million, or A$2.13 a share, to investors. The asset manager valued Babcock shares at between A$7.80 and A$10 each.

Irish Investments

Pendvest also said Babcock should consider selling its investments in Eircom Ltd., an Irish telephone business, and Golden Pages, which runs Israel's largest print and internet phone directories.

Babcock, which last year bought 57 percent of Ireland's largest phone company, said in August cutting 900 Eircom employees may cost as much as 175 million euros ($260 million), paring as much as A$165 million from earnings. It initially forecast an impact of as much as A$5 million.

Pendvest also demanded the company address A$122.6 million in fees paid to parent Babcock & Brown Ltd., saying some of the fees should be returned to shareholders. Babcock owns 7 percent of the fund.