Support Growing to Reject JC Flowers Offer for Kent Reliance Building Society

Support is growing for the campaign to reject the deal proposed by JC Flowers to take over the Kent Reliance Building Society (KRBS). Members of KRBS are unhappy that the terms of the deal will give control of the Kent Reliance to the private equity company along with an excellent return on their investment while members get no benefit from the deal.


The members of KRBS need to get at least 25% of the votes cast in order to block the deal which is looking possible from the number of contacts received since the ballot papers were posted at the weekend. Members have until 19th November to decide how to cast their votes despite the board considering the proposals for over 6 months.


The proposal would give a new society Kent Reliance Provident Society (KRPS) 60% of the new bank with 40% given to private equity firm JC Flowers in return for £50 million of new capital. However details hidden in the voting pack documents show that this new bank is likely to be 75% owned by JC Flowers with only 25% for members of Kent Reliance as the board of KRBS predict that they will immediately need further additional funds to offset losses in their commercial loans book.


The proposed deal gives JC Flowers a return of up to 8% dividend per year on their shares in the new bank along with a 20% return on their money if they decide to sell in future.


Members of the KRBS are getting "up to 0.1%" on their easy access savings accounts or 1.02% on their ISA savings so this deal offers nothing to them especially compared to the returns that the JC Flowers private equity fund is making on their investment.


Note for Editors:


Kent Reliance is the only building society based in Kent which includes the Chatham Reliance (established 1898), Dover District (established 1861) Herne Bay (established 1888) and Kent and Canterbury (established 1847). Kent Reliance Building Society has been a long standing mutual society serving mainly Kent through its network of branches. In recent years the local branch network has been closed as the business has concentrated on postal accounts, many of the back office duties have also transferred from Chatham to India. 

Kent Reliance Takeover (Kent Reliance Building Society) On BBC News

BBC South East Today ran a story on the Kent Reliance takeover by JC Flowers today and did a short interview with me. Unfortunately they didn't use much of the material we recorded but hopefully the piece they showed will keep the issue in the media.

There is a press conference by KRBS tomorrow (Tuesday) in Rochester so more news may be forthcoming about the details in the Transfer document and why they have not given out the full facts in the summary of the proposals.

Kent Reliance Transfer to One Bank - JC Flowers Private Equity Deal

Some rather interesting information has come to light from web sources regarding this deal by Kent Reliance.

One of JC Flowers reported other targets has said:

“Unlike Kent Reliance, we are well capitalized and a financially strong business, therefore we have no reason to join JC Flowers as part of a supermutual.”

Another site says

"The deal is likely to prove controversial, given founder Chris Flowers's reputation as a tough deal maker with no previous interest in mutuality."

Is KRBS Takeover good for investors?

Read the details of the transfer to find out if the Kent Reliance KRBS take over deal is good for investors - that is investors in KRBS not investors in JC Flowers (JCF). I have no doubt at all that this deal has been structured to be an excellent deal for JC Flowers - a 20% return guarantee and up to 8% interest on their shares is something I think we would all like to have!

Whether the takeover deal is good for savers and investors in KRBS is another matter. The following extracts may be of interest - page numbers relate to the main Transfer Document.

(p63) KRPS will hold 59.9% and JCF 40.1%, The boards view is that significant adjustment is likely to be needed at the time of investment but is not LIKELY to increase JCF holding to more than 75%.

So they expect that JCF could own 75% of KRPS at the time of the transaction!! How on earth can they be proposing a transaction that they already know (expect/anticipate) will be exceeeded or changed as soon as it happens? Surely the transaction should include all relevant information up front rather than buried in the details at page 63.

Changing from KRPS owning 60% to JC Flowers owning 75% is more than a little change in circumstances especially when it happens IMMEDIATELY not at some unspecified point in the future!

At this point JCF can appoint the majority of directors and therefore control the company! So within a few months of the transfer, KRPS will have no control over the assets and bank that they created. Some deal for the Private Equity company!! I don't blame them, they are only doing the best by their shareholders and investors, but the management of KRBS are being seriously remiss with hiding these details.

By voting for this deal you are likely to have no windfall and no assets owned by KRPS (KRBS) within a few months. KRPS will be just like every other bank - no more mutual society owned by its members for their benefit.

Kent Reliance Takeover (Kent Reliance Building Society) KRBS Takeover Why No Windfall

I hope a few more people realise the significance of what is being voted for. I've gone through the main document and there are some areas that have been very much glossed over in their summary. In addition the following was in The Observer newspaper on Sunday 24th October which presumably is based on the KRBS vehicle doing the bidding.

American private equity group JC Flowers is lining up bids for at least four UK building societies as part of an audacious plan to create a "supermutual" that could be partially floated on the London stock market in five years. West Bromwich, Skipton, Norwich & Peterborough and Principality are in his sights; together, they have more than 1.7 million members, the Observer reports.

(p61) The board's view is that further preference shares will be issued to JCF at the time of investment as a result of writedowns in the commercial portfolio.

So the numbers given for shares owned by both companies are meaningless if further shares are being issued at the same time.

(p63) KRPS will hold 59.9% and JCF 40.1%, The boards view is that significant adjustment is likely to be needed at the time of investment but is not LIKELY to increase JCF holding to more than 75%.

So they expect that JCF could own 75% of KRPS at the time of transaction!! How on earth can they be proposing a transaction that they already know (expect/anticipate) will be exceeeded or changed as soon as it happens? Surely the transaction should include all relevant information up front rather than buried in the details.

Changing from KRPS owning 60% to JCF owning 75% is more than a little change in circumstances especially when it happens IMMEDIATELY not at some unspecified point in the future!

At this point JCF can appoint the majority of directors and control the company! So within a few months, KRPS will have no control over the assets and bank that they created. Some deal for the Private Equity company!! I don't blame them, they are only doing the best by their shareholders and investors, but the management of KRBS are being seriously remiss with hiding these details.

In my view these are significant points and the board are being extremely secretive, one could even say deceptive, by not publicising these as they relate directly to the situation at the time of the transfer.

Kent Reliance Takeover (Kent Reliance Building Society) KRBS Gillingham FC Sponsor

UPDATE: 23 October 2010, the proposals for the transfer of Kent Reliance KRBS to the new KRPS have now been published. Click here to read why we will be voting against the proposals.
http://www.rainham-history.co.uk/html/KRBS-Kent-Reliance-Building-Society-takeover.html

It has been reported that the Kent Reliance Building Society, KRBS, sponsor of the Gills and Priestfields stadium, is in takeover talks with the US company JC Flowers. It is suggested that JC Flowers will invest £50million for a 49% stake in the business but that as this is not a full takeover it will not generate windfall payments to members.

http://www.bbc.co.uk/news/10594824

In its stock exchange announcement, the building society said the proposed deal with Flowers would "create a new corporate structure for the Kent Reliance business."

This follows the controversial policies pursued by Chief Exec Mike Lazenby involving outsourcing admin processing to India and closing almost all the Kent Reliance branches.

The Daily Telegraph reports "As the boss of a mutual, , chief executive of Kent Reliance, is charged with running the company entirely for the benefit of its customers, with no external shareholders. Yet together they have devised the first private equity investment in a British mutual lender. The deal is being watched across the City and the regions since it could trigger a transformative impact on reform of the building society and banking sectors. "

One commentator said: "Flowers has been lucky with Lazenby who is not the standard mutual boss. He might find the others harder to convince."

The official announcement by KRBS says:

Kent Reliance Building Society today announces that it is in talks with J.C. Flowers & Co. to create a new corporate structure for the Kent Reliance business. If the new structure proceeds, it would allow for substantial new capital investment to support the business and would provide a means for the Society’s members to remain members of a mutual organisation.