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Seems to me the 1.5p offer is completely opportunistic, taking advantage of shareholders perception that without Phoenix, the company would collapse. The more I look at the threat within Phoenix's offer, the more I think it is worth challenging.
How likely is it that Phoenix will pull the funding for SG if they don't get their way with this offer?
I'd say it is close to non existent. If they declared SG insolvent, they would lose their 58% shareholding immediately - it would become instantly worthless and it cost £19.45m to acquire, in addition, as per the recent offer and update, SG now owes them £23m. so I would guess that on top of any other liabilities etc Phoenix would be looking at a paper loss of close to £50m if they pulled the plug.
Is that likely or is this an enormous bluff? The fact that so few shareholders are selling out combined with the buyers coming in today, rather indicates that shareholders are weighing the whole matter up and are not rushing to sell, at all.
Phoenix wanted 58% of the company a few years ago to pay 2.5p a share for it, they should pay at least 2.5p then for the remainder of the company. I reckon other shareholders are realising this too........
Highly unlikely Pearls. Let's see what they say:
"However, Phoenix Asset Management Partners has also confirmed to the Independent Directors that if the Resolution is not passed, it would be necessary for Phoenix S.G. to reconsider its continued financial support for the Company and the Company should not rely on that support if the Cancellation is not effected."
That would be a TOTAL loss for ordinary shareholders, but you could bet that the business would fall into the hands of Phoenix on default.
"As the Company's largest Shareholder and the provider of all of its existing debt facilities, the continuing support of Phoenix S.G., is fundamental to the ability of the Company to continue to trade and the Independent Directors do not believe it would be possible to find a third party willing to provide such support on equivalent terms. The continued support of Phoenix S.G. will also be a pre-requisite to obtaining auditor sign-off as a going concern in respect of the Company's audited accounts for the year ended 31st March 2022."
TOTAL loss if it's not a going concern.
"Given that there is a strong likelihood that the Resolution will be passed,"
That suggests they've already spoken to other major shareholder who are going to be supportive.
As we've been through this before...if the company defaults the Directors will have to move to protect the interests of it's major creditor, in that case it's likely Phoenix will preserve it's assets, but the ordinary shareholders will be completely wiped out. If you remember Debenhams, creditors pushed the company in to default, restructured the business and swapped debt for equity leaving the previous shareholders with nothing. There's nothing to suggest that Phoenix wouldn't preserve their position in default, but you'd lose everything.
Devon, those are absolutely fair comments, but the situation here is not like Debenhams. After all, there is only one creditor here - Phoenix - who also happens to be the banker to the Company and its main shareholder. It's already in a state of default, and has been for the last few years, it's merely the largesse of Phoenix that kept the whole thing rolling on. So if Phoenix pulled their support, they would lose their 58% shareholding which cost them £19.45m in 2017, they'd lose the banking facility and the £23m owed. I get that they obviously would then try to preserve their assets, but frankly those must be small compared to these sums?
Lombard Odier [LO] at 4.94% was the only other shareholder of any size, so that is roughly 63% of the shares controlled, assuming LO agree to the deal, but just look at today's trading - only 0.5% shares sold, of which there have been a number of buys. 3% were sold on Friday, 0.5% today, I do not think it's certain they will get to 75% at this rate - currently we are at 66.5%.
I also think many of the shareholders are staff, and they are really treated poorly by this deal - having worked hard to keep the wheels on the thing over the last few years, they are now not able to share in the turnaround when it comes through - that is unfair, especially as they are being offered such a derisory amount for their shares.
Phoenix will preserve their assets in default, the Magenta returns to them and they'll convert their debt into equity after default. By your calculation, but you've not taken into consideration the holding of other collective vehicles, which you presume the Directors have already been in contact with and that's why they are confident about the de-listing going through. If the it fails on a vote, it will be pushed through under the statutory powers Directors have to avoid a company trading in an insolvent manner. They'll negotiate with Phoenix, that will result in them not being a going concern and they'll transfer ownership to them for a pepper corn value. They wouldn't lose their shareholding, they just gain 100% ownership out of the insolvency. They wouldn't losing anything of value, just the cost of being listed. Debenhmans, like SGI, had multiple creditors, but like SGI, Debenhams had one major stakeholder in the form of it's Sterling bond issuance. They formed a creditor committee and operated in unison. So it's in fact very like SGI. If there's a chance that Phoenix will withdraw it's funding line, other creditors might take the step to pushing SGI into a wind up, if the Directors don't do it before hand. I believe Phoenix will act first, and with secure their position, in default, ordinary shareholders will be washed out of the mix.
Devon, those are good comments. In fact I agree with your analysis.
I would like to know one thing - why do you think they have pulled the plug on the listing now? My contention is that they are privy to much fuller figures behind the scenes and can see there is some sort of turnaround developing. But it does seem to be stopping staff from participating in the turnaround and you would have thought it to be very unpopular with the company. Why is it being done now, in your view - after all you have queried why Phoenix have kept the listing in place for some time previously?
"I would like to know one thing - why do you think they have pulled the plug on the listing now? "
- it's easier to attribute value to a private company than the public one. There's no weighing machine that is the stock market.
- they failed to achieve the momentum that you expect of a growth stock, the trading looks and feels poor
- it saves them money on listing costs..every penny must count.
- it's easier to carry out "restructuring" outside of public scrutiny. Public turn-arounds can be painful when every one can read, and comment, on the required "list" reporting.
- it's time consuming, private company consume less over head
- I've also wondered that at some point, it becomes a subsidiary of one of their other vehicles. That might shore up under performance somewhere else IF they eventually turn SGI around.
I don't think the staff matter much in this, as I've said before, I think the only value in SGI is the brand (hence 0.5 valuations) and the existing staff are just grist for the Castelnau mill.
As you've said you before....they are masters of financial engineering. Unfortunately, in this case, that could be at the cost of SGI ordinary shareholders.
Companies with a controlling entity often get heavily discounted for the reasons we are seeing here. What you've readily described as a supportive shareholder....was really always a great big flash red light...screaming DANGER.
If you are suggesting that one shareholder is privy to more information that the market "privy to much fuller figures" that's bad news for minority shareholders like you.
You are nothing more than flotsam and jetsam...with SGI it's the dictionary meaning "The remains of a shipwreck still floating in water"
It's been a floating ship wreck for years.
Thanks Devon - comments duly noted and agreed with. In fact I can now answer my own question as it would appear that 75% at least of investors have backed the deal so it is going ahead. A raft of late advised trades were advised last evening, so it is now a done deal.
I just hoped Phoenix would be more positive for the shares, sadly this was not to be, but at least I am now out of such an illiquid stock. I just feel sorry for the staff who, I agree, are irrelevant frankly to Phoenix's longer term ambitions and presumably are completely disincentivised by the deal.
Presumably this also now negatively affects the market valuation of Castelnau given the constituent parts of it, but this has been a salutory lesson - it looks like I will be sticking to trading DARK and HBR going forward.
Looking at todays trades it looks like a couple of people didn't get the message