Shares in Propel Funeral Partners Ltd (ASX: PFP) are climbing slighty today. This comes after the company and an independent expert both recommended Propel's shareholders vote in favour of its internalisation strategy.
At the time of writing, the Propel share price is $3.81 – 0.79% up on yesterday's close.
Propel's internalisation strategy will see the company take control of its management from Propel Investments Pty Ltd.
When Propel debuted on the ASX, it signed a 10-year agreement with the managing company. Now, due to share price woes, Propel wants to terminate the agreement.
Shareholders will vote on the internalisation strategy on 22 July.
Let's take a closer look at what the strategy could mean for Propel.
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What's behind Propel's internalisation strategy?
According to Propel, its management situation doesn't align with the market's environmental, social, and governance (ESG) expectations.
Propel believes that, since its initial public offering (IPO) in 2017, the growth of its share price hasn't reflected its earnings.
Propel thinks its share price's sluggishness could be due to its management style being misaligned with ESG expectations.
Additionally, the company believes many institutional investors are unable or unwilling to invest in Propel due to its external management.
How will it affect Propel?
Currently, the management company is owned by entities associated with 3 of Propel's co-founders-turned-executives.
As part of the internalisation strategy, the 3 co-founders will become employees of Propel.
Propel will also change its constitution to allow for 3 more board members, making an 8-person board.
Propel will pay a $15 million fee to terminate the agreement. Half of the fee will be paid in cash and the other half will be paid with Propel shares.
The termination will see Propel avoiding the management fees it is currently paying. However, it will then be liable to pay its executives' wages.
Since its IPO, Propel has paid its managing company $4.9 million, excluding GST. The 3 executives' wages will cost Propel $1.6 million annually.
The strategy will also see 14,732,667 escrowed shares released early. Half of the escrowed shares will be released next year and the other half in 2025.
An independent expert found the internalisation strategy isn't fair, but it is reasonable. The expert also found the strategy's advantages outweigh its disadvantages.
Propel's independent directors have encouraged shareholders to vote in favour of the strategy.
Propel share price snapshot
Propel shares have been performing well on the ASX lately.
Currently, they are 33% higher than they were at the start of 2021. They have also gained 26% since this time last year.
The company has a market capitalisation of around $377 million, with approximately 99 million shares outstanding.
