The board of Digital 9 Infrastructure (DGI9 ) is under attack from a shareholder and developer of its assets, Aqua Ventures, which is calling for a strategic review.

Aqua, which owns 3.47% of the trust’s shares, has been involved with the company since its flotation in March 2021. It developed subsea fibre operator Aqua Comms, one of the trust’s largest investments, which makes up 18% of assets.

However, the relationship has turned sour as the investor and developer has lost confidence in the company which it believes has been poorly managed and governed.

Shareholders in the company have suffered this year losing 51% up until October with the shares marooned on a 61% discount to their June net asset value of £897m. Underlying returns are also lacklustre at just 0.3% for 12 months, compared with a sector average of 5.8%.

Turning the screws

In a letter to Phil Jordan, chair of DGI9, Aqua called for the company to announce a strategic review supported by an independent financial adviser before 3 November and elect a new independent board member with merger and acquisition experience. Otherwise the group said it has support from shareholders representing over 20% of ordinary shares and they would collectively call for an emergency general meeting to remove and replace the board.

In the letter sent on 27 October and published on Monday, Aqua highlighted the ‘repeated failures’ of the board and its investment manager, Triple Point, to ‘change course and communicate effectively’ with investors during periods of underperformance. These failures include the ‘shambolic’ set of announcements regarding the company’s dividend, which was withdrawn in the last results, and the length of time it took to replace the investment manager in a ‘critical period’.

However, it was moved to act by the announcement last week that DGI9 would offload its crown jewel asset, Verne Global.

The company had planned to sell part of its holding in Verne, which makes up 22% of the portfolio, through a syndication. However, it now aims to sell the entire stake in order to pay of its debts and ‘further maximise shareholder value’.

The last straw

This was the last straw for Aqua who said a sale would ‘risk value destruction by stranding the company’s other assets’.

‘A failure to evaluate options for the company could result in a serious breach of fiduciary duty that will cause irreparable harm to the company and its shareholders,’ said Aqua. ‘In such circumstances there will inevitably be cause to investigate.’

Jordan, however, was unmoved and in a letter published on the stock exchange, said ‘initiating a strategic review as this juncture is not in the best interests of shareholders because it could destabilise the Verne Global sale’.

He added the board had considered the matter ‘very carefully and taken detailed financial and legal advice (including with respect to fiduciary duties)’. He called for shareholder support so the board could execute the deal in a ‘stable environment’.

Aqua also queried the relationship between the board and Triple Point and questioned ‘whether the board is allowing itself to be led into strategic mistakes by advice and information provided by Triple Point, which is self-evidently in a conflicted position with respect to these critical decisions’.  The investor further highlighted the appointment of Goldman Sachs as its lead adviser in maximising shareholder value given it has been advising Triple Point.

Jordan staunchly refuted these claims, pointing out Goldman Sachs is no longer engaged with Triple Point and is acting alongside JP Morgan Cazenove and Peel Hunt.

‘Triple Point has in-depth knowledge of the portfolio companies and holds close relationships with the D9 portfolio company management teams which could not easily be replicated by another third party,’ the chair added. ‘The board takes its oversight responsibilities very seriously and is actively involved in considering all options that have the potential to generate value for D9 shareholders.’

Schroder Investment Management is the top shareholder in the company owning 12.4% of shares followed by Rathbones, RBC Brewin Dolphin and Canaccord Genuity, which own a collective 19.6%.