Adams Express Co., an 86-year-old closed-end investment fund based in Baltimore, is being targeted by an activist investor who thinks the $1.53 billion fund is significantly undervalued.
Phillip Goldstein, who runs Special Opportunities Fund Inc., filed a stockholder proposal last month with Adams Express that seeks to pressure the fund managers to either boost its value or to self-tender all its shares, which could liquidate the fund entirely.
Goldstein, a well-known New York investor who manages Special Opportunities Fund through another investment firm, Bulldog Investments, said he was unimpressed with the performance of Adams Express and wanted to "take the temperature" of other shareholders to see if they shared his concerns. He was particularly critical of what he characterized as excessive compensation to the board and managers.
"It's an old fund," Goldstein said of Adams Express, which traces its roots to a 19th-century cargo business and has operated as a closed-end fund since the Depression. "People who are older tend to become more passive [investors] as they age. It's a tough road for us to wake them up, but we'll try."
As a closed-end fund, Adams Express initially raised money to invest by selling a fixed number of shares that now trade on the New York Stock Exchange. The shares closed Monday at $14.02 each, a 13.9 percent discount from the value of the assets in the fund, which was $16.28 each.
Adams Express is calling on shareholders to reject Goldstein's proposal, saying that liquidating the fund would harm long-term investors, according to a company filing with the U.S. Securities and Exchange Commission.
It argued that Goldstein used an inaccurate method of calculating the fund's returns, which they say are better than Goldstein painted them to be. It also said that 91 percent of closed-end funds trade at a discount and that it had benefits, as investors could buy more shares than they otherwise could and tap the full value of the fund's assets for a cheaper price.
Adams Express said the fund's expense ratio was 0.58 percent last year, lower than most actively managed funds, and that this year's compensation proposal is a renewal of the same plan that has been in place since 2005.
The fund's board "is always mindful that some discount-reduction measures may benefit short-term stockholders and opportunists like [Goldstein] more than long-term stockholders," Adams Express said in the filing.
Adams Express also called his linking the executive compensation proposal — to be voted on at the fund's annual meeting in April — with the fund's performance a "red herring," and argued that "there is no linkage between that proposal and his."
A former civil engineer for New York City, Goldstein has built a reputation for agitating for change and has targeted other companies in the past. Last month, his group submitted similar proposals to three other older closed-end funds, Tri-Continental Corp., General American Investors and Central Securities Corp.
"We believe in shareholder democracy and holding management accountable," Goldstein said. "I think the attitude [of boards] is the purpose of shareholders is to shut up and pay the fees, pay their compensation."
Lawrence Hooper, the fund's vice president, general counsel and secretary, said Goldstein was targeting the class of older closed-end funds to appeal to his own investors. Of the board, he said: "We fully expect to prevail.
"I think he's doing this because he represents himself to his investors as being an activist shareholder," Hooper said. "He's decided he needs to be more active to comply with that part of what he does."
Goldstein declined to say how many shares he owned of Adams Express, beyond that the value was in excess of $2 million. Hooper said Goldstein owned about 300,000 shares, which were trading around $14 on Monday, putting his value at more than $4 million.
Hooper said Adams Express had been targeted in 2011 by another fund and in 2000 by Goldstein, with proposals to self-tender a small amount of shares or convert to an open-ended fund, but said this time Goldstein was "more aggressive" in seeking to self-tender all the shares.
The shareholders will vote on Goldstein's proposal at their annual meeting on April 30.
Separately, Adams Express and its sister fund Petroleum & Resources Corp. will change their names March 31 to better reflect that they are investment funds and not operating companies. Under the new Adams Funds umbrella, Adams Express will become the Adams Diversified Equity Fund and Petroleum & Resources will become the Adams Natural Resources Fund. The two funds share the same management and board of directors.
Shares of Petroleum & Resources closed Monday at $23.34, a 12 percent discount to their net asset value of $26.53.