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The showdown must go on

After narrowly avoiding a courtroom confrontation last November – much to the media&#39s disappointment – Jupiter chief executive Edward Bonham-Carter and his former boss John Duffield finally squared up for their first public head-to-head last week.

This time, most of the national press appeared to be oblivious of their opportunity to take a front-row seat at the big showdown. But the few journalists and 49 shareholders who managed to attend were not to be disappointed.

The occasion – an extraordinary general meeting of the New Star investment trust – bore little significance in the grand scheme of things. With little or no money from outside investors, the trust is not of any great interest to the general investing public.

But with Jupiter now set to take New Star back to court, after Duffield refused at the EGM to split the trust or consider a share buyback, the debate has refuelled the New Star/Jupiter feud.

The £100m investment trust largely comprises Jupiter employees&#39 proceeds from last year&#39s Commerzbank buyout. But, with Duffield himself as the biggest shareholder, the Jupiter shareholders have found themselves with no say in their money&#39s future.

With almost 40 per cent of the trust in his own name, Duffield – the former Jupiter chairman – has the power to make or break any motion which is put to the board.

Jupiter has approximately 39 per cent of the trust, while the remainder is in the hands of New Star supporters.

Jupiter says November&#39s settlement with Duffield stipulated clearly that he should make a move to split the trust or at least give shareholders a new set of options at the earliest possible opportunity. By rejecting the proposals and suggesting no contingency plan, Jupiter says Duffield is now in breach of contract. It has therefore brought its lawyers back on to the scene.

In his defence, Duffield says Jupiter&#39s suggestion of splitting the fund into two unit trusts – one managed by Jupiter and one by New Star – would present tax problems and could cost up to £2m.

He has also ruled out the option of a share buyback because he believes it would leave too high a proportion of the trust&#39s holdings in the hands of too few shareholders, jeopardising its status as an investment trust.

Jupiter disputes both of Duffield&#39s arguments and has been further angered by his persistent claims that the problem is Jupiter&#39s to solve and not his.

Jupiter employees are unwilling to take the obvious step of selling out of the fund as they will lose money due to its current discount of more than 10 per cent.

In answer to this, Duffield reminds shareholders that when the fund was created shortly before his departure last summer, it stated clearly that its aim was to achieve long-term growth. He says Jupiter employees should sit tight and eventually they will see the discount narrow and their money grow.

Ironically, on this point, Duffield is probably right. Under the command of former Jupiter star fund manager Alan Miller, the fund is likely to produce promising returns over the longer term.

But for Jupiter, principle has now become more important than the practicality. In its eyes, Duffield is now deliberately denying shareholders the options which were once promised.

Furthermore, Miller&#39s decision to start investing part of the fund in New Star Asset Management itself, an unquoted company, is regarded as adding greater risk to the fund.

Meanwhile, Duffield will be unperturbed by Jupiter&#39s move to take him back to court. As Bonham-Carter conceded in his opening speech at the EGM: “We all know that if John wants something, he gets it.”

Duffield appears to be relishing being back in the spotlight. All smiles after the EGM, he posed happily for photographers while making sure he was sufficiently shocking inside the conference to guarantee coverage across the UK press.

He freely criticised the senior management of Jupiter as being “contemptible”, saying he left the firm last summer “because the Germans sacked me”. He accused Jupiter of forcing its employees with NSIT shares to vote in favour of the split although he said he knew that many did not want to. He was also quick to point out that many Jupiter employees now hold a greater share in New Star than they do in their own firm.

But as the meeting drew to a close, one of Duffield&#39s supporters at the meeting added a thread of reason and reality to the proceedings. Although glowing in his references to Duffield, he conceded the battle would inevitably damage the reputations of both firms if it was to continue.

Although the pride and principles of the shareholders involved may be on the line, consumers see only a squabble between two major inv-estment firms which could be spending their time more productively. Potential Jupiter investors and IFAs will continue to feel nervous as long as Duffield stalks.

Equally, Duffield has yet to roll out New Star to the retail market. A court case at the time of his first fund launch is unlikely to inspire prospective investors.

Hargreaves Lansdown investment manager Ben Yearsley says: “I think they are both going to end up looking silly if this carries on too much longer and there is a risk that people will stop investing with them. I can see both sides of the argument but they would do much better to give everyone back their money and pout this behind them.”


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