VGI extends Regal talks as firms fail to strike deal
VGI Partners is expected to extend merger negotiations with Regal Funds Management on Monday, with the two firms’ principals trying to iron out a few wrinkles including around remuneration and the mooted merger ratio.Street Talk understands both sides are negotiating in good faith and remain keen to seal the deal, however will formally extend talks after failing to agree to terms in the targeted six-week period.That update’s expected to take the form of an ASX announcement by Rob Luciano’s hedge fund firm VGI Partners. Sources involved in the deal said the talks could stretch another fortnight.
One reason for the prolonged discussions relates to the difficulty in assessing the value of VGI Partners, whose core investment portfolios are through one of their most tumultuous periods.VGI’s flagship unlisted hedge fund lost 3.3 per cent in 2021, its first loss since debuting in 2009 and a result that dragged its track record since launching to behind the MSCI World total return index for the first time. And 2022 hasn’t seen a dramatic change in fortunes.
The patchy performance triggered a run of investor withdrawals that wiped $700 million from the company’s funds under management in the six months to the end of December, to stand at $2.5 billion.The company has also struggled to stem a tide of staff turnover that has seen its chief executive and two thirds of the investment team leave in the past three years. Most recently, senior analyst Tom Davies was out the door, while head of Asian research Andrew Chou is understood to be working out his notice period.While 2021 was a shocker, market gyrations linked to war in Ukraine have weighed on its listed portfolios, adding further woe.
The value of assets in the VGI Partners Global Investments listed investment company have fallen 5.5 per cent since news of the initial deal with Regal were announced in January, while its Asia-focused LIC is down 4.5 per cent.Regal’s only listed portfolio, however, has inched 0.3 per cent higher during the period, adding further heft to principal Phil King’s negotiating position.The initial terms of the deal, structured as a VGI acquisition of Regal but in essence a merger and back door listing for Regal, placed Regal with a 60 per cent share of the combined business. That proportion could creep higher given what’s happened since.
As the negotiations continue, Regal’s King is said to be getting to know the full repertoire of Luciano’s private chef, with the two stockpickers lunching most days in VGI’s offices to thrash out the finer points of the deal.One topic the two are likely discussing over rare roast beef and autumn vegetables is Luciano’s pay packet as he transitions from executive chairman ranks to a Regal portfolio manager.Luciano promised to never draw a bonus from VGI when the company listed on the sharemarket in 2019, instead relying on a $450,000 salary and company dividends, aligning his interests with fellow shareholders.
Now, insiders say Luciano is pushing a request to rework his remuneration in conjunction with the Regal deal. Sources suggested he wants a five-year deal worth $25 million, a level which may begin to attract the attention of the Takeover’s Panel.King, who already has a stable of performing portfolio managers, seems unlikely to agree to such generous terms. The seasoned trader isn’t the one that needs the merger to try to turnaround his business.
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