Marketing services provider Media Square is the latest AIM company where a large shareholder is attempting to gain board representation or even take control of the board.

This appears to be happening increasingly as share prices start to recover. It is a way of gaining influence and control without having to bid for the company itself.

AIM-quoted Prime Active Capital owns 21.5% of Media Square and wants its executive chairman Peter Lynch to be appointed to the marketing company’s board at the AGM on 26 August. The stake is worth a lot less now than when it was acquired because of the sharp fall in the Media Square share price over the past two years.

Media Square was highly acquisitive and ran into problems digesting all those acquisitions. It also built up large borrowings. New management, headed by executive chairman Roger Parry, is turning the business around and reducing debt through disposals.

According to Media Square, Lynch has said that he and former Media Square boss Jeremy Middleton “go out on the lash” together. Middleton denies he has any professional involvement with Lynch.

Things are complicated further by Tony Gill’s 16.1% stake in Media Square. Gill owns 10% of Prime Active Capital but he denies acting in concert with Lynch. Gill claims to have bought the shares after reading an article in the Investors Chronicle.

Lynch has met some of the senior management of the group and they have stated that they back the board in recommending that shareholders vote against his appointment as a director. However, if Gill does support him he will be in a strong position.

Speech recognition services provider Eckoh is fighting off an attempt by 12% shareholder OCS Trading to have John Samuel appointed to the board as chairman and remove director Peter Reynolds, who already plans to step down. OCS is a subsidiary of Aim-quoted ORA Capital Partners and it appears particularly interested in the company’s cash pile.

Eckoh had net cash of £5.2m at the end of March 2009 plus £3.2m to come from the sale of Symphony to telecoms services provider Redstone. At 8.62p a share, Eckoh is valued at £16.98m. Eckoh’s profits are forecast to grow and there are opportunities to expand in Europe.

There have been recent rebel successes. Worldwide Opportunities Fund (Cayman) Ltd requisitioned a general meeting at property investor Speymill Macau on 21 July. Worldwide owns 22.08% of Speymill Macau and it succeeded in removing five directors and replacing them with three appointees of its own.

The level of voting was not disclosed so it is impossible to say whether Worldwide garnered significant support or if there were a large number of shareholders that did not vote. It does show that a shareholder with less than one-quarter of the company can effectively take control – at least in some cases.

Rebel shareholders at laser eye surgery technology developer CustomVis failed to gain control as they only managed to gain the support of 16% of the share capital and were easily defeated. In this case it was a failure to persuade the main shareholders to back them that led to the failure.

Earlier this year, software company Gladstone fought off an attempt by 29.9% shareholder Constellation Software Inc, which had failed in a bid for the company, to gain a seat on its board. Gladstone felt that the board position could be used to gain information to launch another bid. This shows that, even when a company starts from a strong position if the smaller shareholders vote they can affect the outcome.

One company that is no stranger to general meetings being requisitioned to remove board directors is ACP Capital. It is facing its third general meeting in around 15 months that is attempting to replace directors with appointees of the requisitionists. The existing board is in place because of the original general meeting held in July 2008 where the founders, including Derek Vaga, were replaced. Vaga, who failed in an attempt to be reappointed last year, is behind the latest attempt to gain board representation – although he is not up for election this time. The general meeting is on 14 August.

Requisitioning general meetings causes significant costs for the company and it will have a much better use for that cash in the business. Anyone requisitioning a general meeting needs to have a good case.

One thing that this activity reaffirms is that shareholders need to make sure that their vote counts. Even if someone starts off with backing from a large percentage of the share capital they can still be defeated if enough of the other shareholders vote against them. Whichever side shareholders’ support they should make sure that they give them their backing and not allow one side to win through shareholder apathy.

Undoubtedly, some companies need a shake up but sometimes it is more a case of someone feeling they can get control on the cheap without a full bid for the company.

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