Interserve inches closer to safety as second proxy adviser embraces rescue deal

Interserve scored a second victory on Thursday in a long running feud with its biggest shareholder, Coltrane Asset Management, as Europe’s largest independent shareholder advisor backed a rescue deal designed to save it from administration.

Pensions and Investment Research Consultants (PIRC) has followed another advisor, Institutional Shareholder Services (ISS), in throwing its weight behind the debt-laden outsourcer’s deal, City A.M. can reveal.

The deal needs to win 50 per cent of shareholder approval at a vote on 15 March to go ahead, otherwise Interserve will go into a pre pack administration, but 27 per cent shareholder Coltrane has opposed it.

Read more: Interserve board rebuffs rebel shareholder's demands for new rescue plan

Workers at the NHS and the Foreign Office are among Interserve’s 39,000 UK employees, and 70 per cent of its annual £2.9bn turnover comes from the government. But the company has racked up more than £630m worth of debt in recent years, and is scrambling to push through a financing package with lenders RBS, HSBC and BNP Paribas to save it.

Coltrane, a US hedge fund led by financier Mandeep Manku, has been railing against Interserve’s proposals for the last month because they dilute shareholder value to just five per cent, handing the rest to the lenders.

The fund threatened to sue Interserve’s board last week over the matter, eviscerating the outsourcer’s plan as a “terrible” deal, before issuing a fresh set of demands this week which involved instead giving investors 35 per cent control.

Interserve quickly rebuffed the plan, saying it could not consent to Coltrane’s request “without risking the future of Interserve together with its employees, pensioners, customers and suppliers”.

Advisors at PIRC said of Interserve’s plan: “In light of the given necessity of this proposal, a vote in favour is recommended.”

Interserve has 39,000 UK employees, and 70 per cent of its £2.9bn turnover comes from the government (Source: Interserve)

The report also addressed Coltrane’s concerns that the board’s management of the issue had been “reckless” and shown “negligence at best”.

“There is sufficient balance of independent representation on the board which provides assurance that the proposal is undertaken with appropriate independent judgement and oversight,” PIRC’s report said.

The news comes after it emerged proxy adviser ISS, the biggest in the US, had also told shareholders Interserve’s plan was the best option, driving the firm's stock down eight per cent on Thursday afternoon.

First reported by the Financial Times, ISS said although the deal was “not without concern for the shareholders,” it should be supported because it would “avoid potential insolvency”.

It also said the fact shareholders had the option to claw back more value on top of the five per cent initially handed to them would lessen the “dilutive effect to participating shareholders”.

Read more: Interserve shares soar as it mulls rescue deal demands

Interserve’s chief executive Debbie White now has just over a week to ensure more than half the firm’s shareholders back her plan rather than siding with Coltrane.

But doubts remain over whether she will succeed, as more than one-third of shareholders have indicated they will vote down the deal. Coltrane last month enlisted the support of six per cent shareholder Farringdon Capital Management, a Dutch hedge fund, in its struggle for control over the outsourcer.

City A.M. has approached Interserve for comment.