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Sorry there was an arithmetical error in the last but one paragraph - mixed up my 25p and 5p shares. Corrected and rephrased below:
Following part (i) they have an additional 300m 25p shares = 842,573,869, and are likely to need at least a 5 for 1 subdivision, which would result in there being 4,212,869,345 issued 5p shares.
The part (iii) equity raise of c£70m in new 5p shares would result is issuing 70m x 20 = 1.4bn new shares. A grand total of c5.62bn 5p shares.
(Equivalent to 1.1bn 25p shares - or roughly double the current number.)
Thanks for your thoughts kenj.
It'll be interesting to see what happens.
"Advanced Oncotherapy (AIM: AVO), the developer of next-generation proton therapy systems for cancer treatment, announces a prospective recapitalisation and funding plan to raise up to c.£110 million. The prospective plan comprises three elements:
(i) a debt to equity conversion (the "Debt to Equity Swap");
(ii) the Company receiving a new interest-bearing secured loan; and
(iii) an equity fundraising (the "Equity Fundraising")
(together the "Prospective Recapitalisation Plan").
Financing transactions - Target Amounts
(i) Debt to Equity Swap and debt repayment = £ 25.7-£37.4m
(ii) £10 million secured loan = £10.0m
(iii) Equity Fundraising = £61.7-£73.5m
TOTAL = c.£110m"
How it might work. Each step is dependant on the previous step being completed.
(i) Debt to Equity Swap and debt repayment = £ 25.7-£37.4m
Let's assume that a mid number of creditors accept this - and £30m of debt is agreed to be converted into shares. This will be repaid by issuing 25p shares, but suppliers and borrowers will be offered to settle the debt with new shares at the notional Issue Price of say 10p.
To repay £30m at the current 2p price would require issuing 30m x 50 = 1,500,000,000 new 25p shares.
To repay £30m at a notional Issue Price of 10p would require issuing 30m x 10 = 300,000,000 new 25p shares.
In real value the creditors will have received 20p in the £, or one fifth or what they were owed. An 80% haircut may seem harsh, but the company is threatening administration.
(ii) £10 million secured loan = £10.0m
This has been agreed with the lender subject to AVO clearing most of the old debt.
At this point the company's shares suspension could be lifted.
(iii) Equity Fundraising = £61.7-£73.5m
By completing (i) and (ii) by issuing 300m new shares, clearing most of the old debt, plus arranging a new £10m loan, the share price would be expected to rise, as the threat of insolvency abates. However, it is unlikely to rise to 25p. So the company will need a subdivision before they can do this. Assuming the sp rises above 5p:
They have an additional 300m shares = 842,573,869, and will need at least a 5 for 1 subdivision, which would result in there being 4,212,869,345 issued shares..
The equity raise of c£70m in new 5p shares would result is issuing 70m x 20 = 1.4bn new shares. A total of c1.82bn shares.
Now the visibly shocked directors will be able to perform their hoped for share consolidation. However, they would be wise to keep below the trading value of the shares, or they could soon again find themselves unable to issue any shares.
I've changed my opinion about the possible amount of the consolidation. I now believe that the target share price might be between 20p to 25p, which would result in a 10 to 13 times reduction in the number of shares. A 10 times reduction would cut the number of shares to 54,257387 which would not be far off the result of the 2016 25 to 1 reverse split that reduced the number of shares to 57,780,361. The nominal sp of 25p would need to drop a bit to accommodate the overall plan. Before the 2016 reverse split it was 1p. It became 25p at the same time as the 2016 reverse split. If history repeats itself it could drop to 2.5p or less.
In that case, perhaps straight after the EGM?
"My guess is that might be by the end of this month."
Not a chance of that happening by then Meldrew44.
To consolidate or subdivide the shares, they need to call a general meeting. They have to give at least two week notice to call an EGM.
I expect that the consolidation will not take place until AVO has obtained the agreement of all parties who will be affected by the prospective recapitalisation plan. Everything, including the consolidation and sub division will then probably take effect at more or less the same time. My guess is that might be by the end of this month.
I cant see any consolidation until they are re-financed or sold. I'm sure there are ways and means to achieve the BODs plans, so looking ahead, if part or all sold as per rumors, for say £200M, would leave about £100M for shareholders after debt paid off, 14p. And same if still public, cashed up to end of human trials. Maybe worth a lot more as a going concern hedging successful trials and future production.
As regards issuing new shares; it makes absolutely no difference whether the number of shares is halved following a share consolidation, or doubled with a share subdividion. The actual share value is almost certain to double or halve accordingly.
Eg:
Nominal Price = 25p - Actual Share Price = 2p - Current
Nominal Price = 50p - Actual Share Price = 4p - 1 for 2 Consolidation
Nominal Price = 12.5p - Actual Share Price = 1p - 2 for 1 Share Split
With either option the Nominal Price is 12.5 times higher than the actual trading price.
New shares cannot be issued below their nominal value, so none of these options allow the company to issue any new shares.
To issue new shares, AST would need to perform at the very least, a 25 for 2 share split to reduce the nominal share price to 2p. That would multiply the number of issued shares by 12.5 times. The exact opposite of what the directors want.
Following the last consolidation in June 30 2016, there were 56,780,361 - 25p shares in circulation. The current number of 25p shares in issue is 542,573,869.
That is an increase of 9.5 times in 7 years.
Who exactly, if it wasn't the directors, authorised a rights issue, placings, issue of warrants etc, that caused this vast increase in share numbers? So the board moaning about there being too many shares seems a bit rich to me.
Indeed, Kenj, but what I’m now confused about is that raising equity at a *low* share price (which “optically” might be more palatable) doesn’t make sense either, if existing shares are split pro-rata. It seems hard to demonstrate to new investors that they are investing at a price that might not immediately go down (though it may not).
Doubling the Nominal Share price will as you say halve the number of issued shares, thus doubling the value of those shares. See examples of this below:
Nominal Price = 25p Share Price = 2p Difference = 23p
Nominal Price = 50p Share Price = 4p Difference = 46p
Nominal Price = 100p Share Price = 8p Difference = 92p
The effect of this is to greatly increase the difference between the actual and Nominal share price. This makes it even more impossible for the company to issue new shares, as they conceded in the RNS. Is that what the BoD consider to be an orderly market?
"The Directors consider that the number of existing Ordinary Shares is not only unwieldly in volume for a company of
Advanced Oncotherapy's market capitalisation, but when combined with the prevailing share price, is not conducive to an orderly market. "
The wording is so similar to their statement in 2016 when they divided the number of shares by 25, that the only conclusion I can draw from it is that they will not be content with merely halving the number of shares this time, either, as that would only increase the share price to around 4p. I believe that the BoD wants to increase it to far more than that.
"A new nominal price of 50p could be created, existing shares would halve in number, then the £100m could be raised at 50p. Exactly the same outcome. Indeed the £100m could just be raised at 25p with exactly the same outcome."
The company could indeed issue new shares after a 1 for 2 consolidation at 50p, or indeed now without the consolidation at 25p.
The problem is who will buy these shares that are priced more than 10 times higher than the last trading price before suspension?
I believe a significant reduction in the number of share is on the cards. Going on the wording of their statement and the similarity it has to their statement in 2016 when they reduced the number of shares by 25 times, I expect a reduction of a similar magnitude now. That would make the share price somewhere between 40p and 50p. I've tried, and failed, to work out what effect that might have on the rest of their plan.
Actually I’ve realised what I set out is rubbish. There’d be no need for all those steps. A new nominal price of 50p could be created, existing shares would halve in number, then the £100m could be raised at 50p. Exactly the same outcome. Indeed the £100m could just be raised at 25p with exactly the same outcome. It would make more sense if existing shares were written down in some way or not altered as the nominal price changes, but I believe that does happen.
Curious, I totally agree that the mcap will be restored to a sensible place after the recapitalisation, if it happens. When you think the mcap was north of £100m a year ago, and now the debt would have been repaid with £60m in the bank. But the markets are weird at the moment.
IWTO that is a possibility however that would make the total number of shares even more totally “unwieldy” in the words of the directors. It is the only comment I find personally the most revealing, for that reason I expect as we move forward total shares issued will be less than today just depends how much.
With support from perhaps another major investor / current investors I believe all realise at this 11th hour and technically de risked position the shares are worth much more than the current market cap. Time will tell and I expect to hear a concrete plan by the end of July. GLA
Curious, thanks for your calcs but I think the existing shares need be adjusted for the new nominal price. How about:
Company decides on new nominal price - say 5p - and raises equity at the same price. £100m raised to cover all debt and ongoing requirements. That’s 2bn new shares. But the existing 543m shares are the subject of a share split and are turned into 2715m shares at 5p (ie 5x because the new nominal price is 5x lower than current nominal). So now we have 4715m 5p shares in total.
This is too many so a 1:10 consolidation results in 471.5m shares with a nominal 50p price. Existing shareholders retain a decent percentage of the company (>50%). Does this look right?
But here’s a thing. For the new investors not to lose money on day one of trading the market price needs to be 50p. (They now have 200m shares effectively issued at 50p). So that implies an mcap of more than £230m. Really? And, btw, the resulting mcap and proportion of the company held by existing shareholders doesn’t change whatever the new nominal/issue price. Try it. Happy to be corrected in all the above!
I have been thinking about this Share consolidation and it is interesting with AVO's proposal that it will be followed by a subdivision/Share Split: being the opposite of a share consolidation, increasing the number of outstanding shares while proportionately decreasing the share price, usually done to make the shares more affordable and increase market liquidity. Which is clearly the only reason to move forward on this basis as no new issues will be issued at the prevailing nominal value of 25 pence.
As I understand the purpose of using both share consolidation and share split together would be to also sort out any convertible securities and adjust the nominal value of the shares simultaneously. Therefore by consolidating the shares first, the company can convert the convertibles on a consolidated basis, ensuring a more accurate conversion ratio. Then, through the subsequent share split, the nominal value of the shares can be reduced.
So hypothetically how could this work especially seeing the comment AVO make about the number of current shares?
“The Directors consider that the number of existing Ordinary Shares is not only unwieldly in volume for a company of Advanced Oncotherapy's market capitalisation, but when combined with the prevailing share price, is not conducive to an orderly market”.
So lets say they consolidate 10:1 and then assume a share split 1:2
If they are going to raise lets say the lower amount of £61.7 Million are they really going to be able to issue new shares lower than 20p??? they will still end up with 417 million shares versus now 542,573,869
Possible Equity Issue Price: 20 pence
Number of New Shares Required:
Total Equity Fundraising Amount / Issue Price for £61,700,000 @ 0.20 = 308,500,000 shares
Share Consolidation and Subdivisionn
Share Consolidation:
Assuming a consolidation ratio of 10:1, : (Even at 20:1 does not make a huge difference to overall sharevolume)
542,573,869 shares / 10 = 54,257,387 shares
Subdivision/Share Split:
Assuming a 1:2 share split, :
54,257,387 shares x 2 = 108,514,774 shares
To achieve the equity fundraising goal of £61.7 million, the company would have:
308,500,000 + 108,514,774 = 417,014.774 Issued shares
This is all hypothetical but I guess my point is focusing on the 'unwieldly' volume of shares and therefore perhaps unlikely to see an offer price any lower, which for all shareholders is very good news. If through this combined action they can also take out Odey the share price could do very well combining a capital raise which should be suffcient to totally complete all certfication and finally treating customers.
All thoughts welcomed, at the end of the day I just want the company to succeed, both as a shareholder and for the good of mankind.
This is a good point - the Recapitalisation Plan provides AVO with leverage in sale discussions. If they can say “look - we’ve got commitments to investment of c£100m, which will mean we have zero debt, c£60m of cash and a great proposition” then the sale price will have to reflect that. And would be well north of £100m, I reckon.
No need to apologize Meldrew44, I don't think that AVO really know what the plan is either. To me, this looks like they have thrown a load of ideas into a hat, and are waiting to see which ones will be picked out.
Kenj.
I apologise for not explaining my thoughts more clearly. However, I suspect that we might be close to finding out what AVO intends, so any further attempts by me to explain my view of the situation are likely to be overtaken by events. It will be what it will be.
"Maybe they want to consolidate first, so not having to change the '25p'nominal share setup?"
If they consolidate then the nominal share price automatically changes to the new value.
ie: a one share for every two held consolidation changes the Nominal Share price to 50p.
I think we will receive an offer for the whole company very soon the financing puts in a better position to negotiate watch this space Good luck to All.
Maybe they want to consolidate first, so not having to change the '25p'nominal share setup?