Wed, 13/02/2008 - 06:00
Andreas and Andreas and Kyriakos, whose credit hedge fund business Argo Capital Management was acquired by Absolute Capital Management in January 2007, months before the departure of Absolute Capital co-founder Florian Homm and the freezing of redemptions from several funds sent the company's shares into free fall, have taken their stake in the business to just over 33 per cent.
Absolute Capital Management has announced the issue to the Rialas brothers of 4,184,626 new shares in the company, representing 6.04 per cent of its issued share capital. The stake held by Andreas Rialas now totals 15,638,146 shares, or 21.3 per cent of the capital, while Kyriakos Rialas now has 8,768,363 shares, representing 11.9 per cent.
The issue of the shares is compensation for the Rialas brothers agreeing to the lifting of a cap on bonuses that was part of the original agreement under which Absolute Capital acquired Argo 13 months ago. Andreas and Kyriakos Rialas received a total of GBP50.46m in the form of a cash payment of GBP6.55m and 12.3 million shares then worth GBP43.91m.
Following Homm's walk-out in September - inter alia, protesting about the bonus curbs - after which several of the funds he managed or oversaw were found to contain small-cap equities that were illiquid and of uncertain value, the company's share price has fallen by more than 93 per cent from their value a year ago. Its market capitalisation stood at GBP20.5m at the close on February 12.
The acquisition agreement contained provisions under which the aggregate level of discretionary performance pay within the existing Absolute Capital business was capped until 2009, with any increase above the cap requiring the approval of Andreas Rialas.
Absolute Capital's directors now say it is vital to be able to pay higher bonuses in order compete with rival hedge fund managers, hence the issue of the new shares to the Rialas brothers in exchange for their consent to the change.
'To remain competitive, it became abundantly clear that we needed to increase performance pay in line with industry standards to retain our existing fund managers as well as to attract new talent,' says chief executive Jonathan Treacher.
'As a consequence we have worked closely with our advisers and the Argo vendors [Andreas and Kyriakos Rialas] to agree an equitable solution which we believe is in the long-term interests of our shareholders.'
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