It's a safe bet that the last place Stuart Bilton thought he would be on a July day would be sitting in a Chicago meeting room as a witness to group of shareholders revolting against his corporate parent, Highbury Financial. But that was where he found himself last month.

Stuart Bilton Aston Asset Management Chairman and CEO

That meeting was part of a chain of events that put Bilton, CEO of Aston Asset Management, and Aston co-founder Ken Anderson onto Highbury Financial's board and provided them a new stake in the mutual fund firm they helped create a decade-and-a-half earlier. Yet their path to the Chicago meeting is one that no other fund firm owner is likely to want to repeat.

Changes in corporate parents is something that both Bilton and Anderson are more than familiar with.

The pair founded the Chicago Trust Funds in 1993 as a way to capture 401(k) rollover assets for the trust firm's clients. By 1996, Chicago Trust's parent, Alleghany Company, carved them out of Chicago Trust and rebranded them as Alleghany Funds. The pair then went through the sale of the funds to the Dutch bank ABN AMRO in 2000.

Ken Anderson Aston Asset Management President

By 2006, ABN AMRO was facing difficulties in its home market, leading it to again sell the funds, this time to a financial holding company formed by the executive management team of New York City-investment banker Berkshire Capital.

While they still oversaw day-to-day management of what is now rebranded as the Aston Funds, the pair had no board seats or meaningful control of the company they founded 15 years earlier when Bilton sat down in Chicago with Richard Foote, Highbury's CEO and a managing director at Berkshire. Also in the room were representatives of four dissident Highbury shareholders: Peter Gottlieb and Eric Kuby of North Star Investment Management; David Kelson of Talon Opportunity Partners; John Weil of Clayton Management Company and, most interesting of all, Timothy Brog, nominally representing Peerless Systems.

Richard Foote Highbury Financial President and CEO

Brog, who is also president of Locksmith Capital and a former laywer at Skadden Arps, is best described as an "activist investor." In that role he takes significant stakes in firms where he sees poor management in order to take a board seat and create change -- or a way to cash out at a relatively high price. It was through such a proxy fight that Brog gained his chairmanship of Peerless Systems. His previous target before Highbury was TravelCenters of America.

His highest profile fight was in 2006 when he fought as part of a proxy for bubble gum and candy maker Topps Company. He fought that battle through his then-investment vehicle Pembridge Capital Management that won him a seat and walked away with a seat on the Topps board.

Sometime before March 6, Brog used his control of Peerless to start quietly accumulating a significant stake in Highbury Financial. By the end of April, that stake had grown to nearly 1.1 million shares, or roughly a quarter of the outstanding count and enough to trigger a 13-D filing with the SEC.

This time Brog hoped to eliminate what he saw as a very conflicted board at Highbury Financial. Brog's concerns include the fact that Highbury Chairman Bruce Cameron and trustee Foote are both employees of Berkshire Capital while Hoyt Ammidon and Aidan Riordan are both former Berkshire employees. Brog also claims that Ammidon continues to keep an office in Berkshire's Madison Avenue headquarters (he cites a Berkshire receptionist as his source) and that Ammidon remains as an advisor to Berkshire and manager of its "cross-border assignments" with its London subsidiary.

Berkshire's Madison Avenue office also serves as Highbury's headquarters (Highbury pays $10,000 per month in rent) and the paid employees of Highbury are also paid employees of Berkshire, claims Brog.

In Brog's view those are just the beginnings of the conflict; He also points out that Berkshire was simultaneously representing both Highbury and third parties as an investment banker and M&A advisor. Some of those Berkshire clients, Brog adds, could end up being competitors for deals sought by Highbury.

Brog also claims that the Berkshire/Highbury executives sought an "unnecessary acquisition" that ended up costing Highbury $3 million. He suggests that Berkshire benefited from the search by being able to market its banking services while meeting asset managers for the deal.

Two days before the Chicago meeting, Foote -- and presumably the rest of Highbury's board -- had taken the first step in what could be seen as a defense against the coming attack by Brog.

Highbury's board voted to amend the corporate bylaws to prohibit shareholders to call special shareholder meetings, lengthen the notice needed to nominate directors and present shareholder proposals, and to require a two-thirds majority of shareholders to create further changes to the corporate bylaws.

These changes must have signaled to Brog that his game was known.

The following day Brog met with Cameron, Highbury's chairman and and CEO of Berkshire Capital. According to Brog, he asked Cameron how he and the board would respond "if the majority of the shareholders wanted change in management and the board."

Cameron, according to Brog, said that "of course" the board would comply with the shareholders' wishes in that matter.

Two days later Brog, Weil and representatives from Talon and North Star, converged in Chicago to confront Cameron and Highbury's board.

The three-and-a-half hour meeting on July 1 appears to have been a disappointment to all concerned. The only participant from Highbury's board at the meeting was Foote. Even Cameron, who had promised to call in, failed to make his virtual appearance, according to Brog.

Later Brog recounted in a letter to the board that the shareholders did agree in their opposition to Highbury's management:

Since Bruce Cameron and his pals Messrs. Ammidon, Riordan and Leary did not have the "testicular fortitude" to participate in the Chicago Meeting in person, nor attempt to attend all or even a portion of it telephonically, nor even bother to explain their absence to shareholders, let us make it clear to each of you what you missed.

We stated in the conclusion of the meeting that management of Highbury should immediately resign and the Board should be reconstituted to include a representative of each of the five largest shareholders. The other three large shareholders at the meeting, who, again, together with Peerless own in the aggregate approximately 60% of Highbury's outstanding common stock (for those directors who want to disregard this fact, that is more than a MAJORITY), each individually reached the same conclusion and stated so.

Unlike the "dissident" shareholders, Bilton did not demand the resignation of the board members and management, says one of those at the meeting. Bilton himself did not return a request for comment for this story.
The Chicago meeting was a pivot point for Aston Asset Management. By August 10, Bilton and Anderson had worked out a deal with Highbury in which they would sell the remainder of their minority stake in the asset manager in exchange for shares in Highbury (Bilton filed ownership of 1.67 million shares with the SEC and Anderson now controls 1.29 million shares).

The pair also won two of three newly created seats on the Highbury board. The other seat was won by Weil.

By bringing Bilton and Anderson under the Highbury tent, Cameron presumably builds a better wall between Highbury and the dissenting stockholders.

Meanwhile, both North Star and Peerless continue to purchase Highbury shares on the open market, building up their armory for a brewing proxy fight. It could be argued that they are prepared to purchase every share that is available.

Brog also filed a request for information on how to contact the the Highbury shareholders ("on magnetic tape," no less) and sought copies of Highbury's board meeting minutes. All of this would be information useful to solicit additional shareholders in a proxy fight.

For its part, Highbury's current management shows no signs that they are preparing to surrender. This month Highbury officials said the board has hired New York-based investment bank Sandler O'Neill & Partners along with New York law firm Debevoise & Plimpton. The financial and legal advisors will review the fairness of the Aston transaction, according to a source familiar with the situation.

Highbury's board has also formed a special committee consisting of Ammidon, Leary and Riordan to "explore and evaluate strategic alternatives aimed at enhancing shareholder value."

Finally, last week they filed paperwork with the SEC authorizing the sale of an additional $22.5 million worth of shares. The sale of the additional stock will make it far more difficult for the dissidents to take over the board.

Meanwhile, the dissident shareholders do not appear to be lowering their pitchforks.

"The saga will continue," said a Highbury investor familiar with the thinking of the larger shareholders. The dissidents "are not going anywhere."

If there is a sale, though, it would mark the fourth change in bosses for Anderson and Bilton.

Meanwhile, the run at Highbury may have already paid off for some investors. Highbury's stock price has nearly doubled from roughly $1.75 when he started buying through Peerless to more than $4 in recent weeks. On Friday, the price closed at $4.85. 

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